Hard to say, depends how much you’re willing to risk and how much you’ll looking to make, obviously more capital will allow you to generate more profits but also if it goes the other way then you’re going to lose a lot more. It is best to start off small and then build up more if you need to. £5k would probably be sufficient to start spread betting, but remember that it is a very good way to lose money very quickly.
However, in general you need sufficient monies in your trading account to reach your financial objectives while being able to survive a protracted drawdown period. If for instance your account has a balance of £10,000, and then after a series of losses it goes down to £8,000 your drawdown is 20%.
Do not get me wrong – spread betting is an industry I’m involved in and as a way of short to medium term trading a whole range of markets it is a great mechanism for doing it. I just think it is important to not get too carried away with the potential rewards because chasing potentially silly returns can lead to really unfunny losses.
Can I start with just 200 quid?
Really, you can start with any amount, spread betting providers today will open you an account with just £100 on deposit. However, this won’t get you far and you may be better spending it, as you’ll likely to lose it in a few days or a week anyway. One thing to remember is that spread betting is a leveraged product and that the spread trading company needs to ensure that if it all goes wrong, you will still be able to meet your losses. For this reason, they need to manage the risk, either by ensuring you have sufficient funds on account or sufficient liquid funds should you need to pay.
For instance if you wanted to go long £10 per point on Atkins stock, £10pp = 1000 shares x 725p/share= total position of £7250. Clearly £200 won’t get you very far. But you need to ask the spread betting company how much funding they want for the particular stock.
“You need to have a minimum of 100 pounds to start with to trade the markets, but £5k is preferable. You can make money straightaway but I would advise you to start with small sums, gradually building up your stake and your money.”
The main problem you will face if starting out with a very small account (500 quid or less) is that your stops are going to have to be so tight to follow any type of decent money management plan and the spread you pay could be up to a few % of your account. Demo trade till you know what you’re doing and can fund a proper account. Underfunding is one of the first things that will kill you in any form of trading.
Having said that it doesn’t mean that its not feasible to start with a small account nowadays – just don’t expect to make stellar gains! In fact for the average Joe and a complete beginner, watching their profits and losses jump about on a £5k account could be scary, and might panic them into doing something in the heat of the moment. And while leverage means you can take spread trades worth many times your funds, you can just as easily take small positions. And there will be plenty of things to bet on where you can limit your loss to £25, or even £10 or less – 2.5% and 1% (of £1000) respectively.
For instance, you could trade the equivalent of a few hundred pounds of shares, something that would never be worthwhile to do if trading the actual shares themselves because of the costs involved. The best traders I know of recommend no more than 2% risk per position, with 200 euro that’s 4 euro per position divided into your stop loss , i.e 20 point s/l = 20c per point, 50 point s/l = 8c per point, and so on. If that’s what you intend doing, you will be fine, but it takes a lot of discipline to stick to this sized position. Whether you consider it worthwhile having a £1k account is another story, and a matter of personal opinion.
If I were you I would stick to a one or two very small positions to get experience and hopefully put in a bit more cash to take slightly higher stakes as experience is gained. I know it will be hard to stick to a small position especially if things are going well but you really need to abide by this.
Is it okay to spreadbet with £2k or start with 500 quid?
Hmm? Ask yourself this: Can you afford to lose the £2k? [hmm I’m not going to comment on the 500 quid!] Can you resist the temptation of using the leverage? Do you have the discipline? If the answer to any of the above is ‘No’ then don’t do it! Beware that the stock market can be a harsh place and takes no prisoners!
My honest opinion is that you should hold off, put the £2k away, and continue to build your savings until you have enough money to attain the benefits of position sizing and diversification (via instruments, models, etc.). With only £2k, you risk being blown out of your position (and losing your start-up capital) on pure market noise. View your investment the same way you would a new business. Would you open a new business (restaurant, dry cleaner, gas station) with £2k in capital? Probably not. Same reasoning applies here.
Having said that here are a few spread betting tips relevant for you to take note of. Spreadbet liquid shares….FTSE 100 and more liquid FTSE 250. If stocks are not liquid (regularly traded), and have no assets then they just represent just too great a risk. Trading small caps and illiquid shares requires considerable experience and a high degree of competency.
The money management can be made to work even trading 1 or 2 quid a point. Always think in terms of the £2k and not the leverage. I am testing something new right now and am doing just that. Betting £1pp. If it works, great, if not I forfeit a few hundred. The problem is that if you’re starting with just 2000 then 200 is 10%. It’s not easy on 2k but I’m sure it can be made to work. And I’m not saying you cant make money starting with £500 but if you want to do it following a sensible plan it will take you AGES to get up to decent sums and probably won’t be worth your time. The alternative is take a much more speculative approach but then you might as well go to the casino or stick it on a horse.
A Big One for me… Minimum $ to start investing/trading?
Once again, that is a part of ‘your’ resources. Because you are building your own trading business, and trading system, and trading rules, the amount of starting capital you have will determine the sorts of markets you can and cannot trade and so forth. I would strongly suggest against anything less than £5000, and would advise that at least £10,000 for any market just for peace of mind. However this is entirely your call, we do not sell you a trading system and so we cannot advise as to the amount you need based on that. Only from past experience that we know the smaller the amount, the less chance of success simply based on trading costs and emotional costs (i.e. bad habits that humans naturally possess are more costly the smaller the capital they have).
How many $ should I plan on for worst case loss scenario during start-up?
You would not want be trading live until you have successfully created and back tested a system and then paper traded it, and only then will you know a possible worst case scenario. There are tools that take all your back test results and help you determine these sorts of things and also how many opportunities you must find in order for your system to reach your objectives that you set.
“Put simply, the less money a spread trader has in their trading account, the harder it becomes to allocate risk effectively on any single trade – which means that it can be more difficult to make a gain on a £1,000 account than a more practical £5,000 balance. But of course, reward and risk go hand in hand and the more money you put into your spread betting account and the more you risk on each trade, the more you can potentially lose.