Comments on: “Undercapitalized Trading”, Or “How I Learned to Stop Paper-Trading and Love Blowing Out My Account”

By: ExEngineer Trade 12-19-2006: VEH, 15 min chart -- Move the Markets

ExEngineer Trade 12-19-2006: VEH, 15 min chart -- Move the Markets — Sat, 03 Mar 2007 19:36:45 +0000

[...] an aside, I opened an account with Zecco, which has solved my undercapitalization problems with their offer of $0 commissions. My maximum risk for this trade was $15, or 2% of my [...]

By: SnowBall Fight (and Other Insights Into Trading for a Living) -- Move the Markets

Wed, 17 Jan 2007 16:44:08 +0000

[...] There is one important corollary that needs to be pointed out. My modified analogy above also serves to highlight the problems of being undercapitalized (which Prospectus also discussed here) – the smaller your account size, the slower and harder it is to grow your capital. This is because the size of your wins are relatively smaller. A 3R win on a 30k account (with R=1% of account size) means a 30R win on a 3K account size (with the same R=1%) – and how often will you experience a 30R win from a single trade? Right, so one subtle (yet important) corollary of this snowball fight analogy is that one of the requirements for entering the business of Trading for A Living is having sufficient account capital. [...]

By: ExEngineer Trade: BTU, 1/04/2007 » Move the Markets

ExEngineer Trade: BTU, 1/04/2007 » Move the Markets — Thu, 04 Jan 2007 22:37:36 +0000

[...] I’ve had 4 wins in a row now! I’m trying not to let me head get too big as I count all the loot. :-P I used to be so frustrated with my trading, and I thought the biggest problem was me. Since Zecco, it seems to have been my undercapitalization in the face of 2% of account equity commissions that were my failing point. We’ll see if that trend continues, but it’s very encouraging for my eventual full-time trading debut (fully capitalized, of course)! Before then, I really need to document the trading plans, systems and rules that are mostly in my head, learned mostly from the great bloggers out there, many of which are on Richard’s “Blogs I Read”. Stocks Mentioned In This ArticleStockLinks BTU | | [...]

By: ExEngineer Trade: Closing Out OSNM, 12/22/2006 » Move the Markets

ExEngineer Trade: Closing Out OSNM, 12/22/2006 » Move the Markets — Fri, 22 Dec 2006 17:09:52 +0000

[...] This trade brought to you in part by Zecco Trading, helping undercapitalized n00bs learn the ropes since 2006. Stocks Mentioned In This ArticleStockLinks ONSM | | [...]

By: Dave’s Trading Journal» Blog Archive » Weekends with Dave - Edition 4

Mon, 04 Dec 2006 04:04:46 +0000

[...] Absolutely spot on. If you’re going to do it, do it right! [...]

By: Christian Gross

Christian Gross — Sat, 02 Dec 2006 16:38:29 +0000

Drop your account and move to Interactive Brokers. IB has min 1 USD per stock transaction and 0.50 USD per option contract. You can’t get any cheaper. Though, if you want to daytrade you need min 25,0000 USD. At least for US equities.

I use IB all the time and think it is one of the best brokers in the market.

By: DK

DK — Sat, 02 Dec 2006 06:49:40 +0000

Great article. I have one more thing to add. I quitted my (accounting) job and started trading at home for 3 months now and have been doing fine.

When I looked back, so many times that I had to double and triple my initial investment to lower my cost or sell options and tied up my investment to breakeven (in order to return to profit. I had been lucky and will work on my risk management).

I learned the hard way as one day in November that my margin balance reach maximum and cannot trade anymore.

In addition, I read from a blog on calculating the true return. You should consider your lost salaries, inflation and “normal” return on you investment. You can also back calculate what your capital should be by reverse the calculation by you average trading return.

For example, you earned $50k per yeas, and inflation is 3% and you return on investment is 11%. With $100k capital, you will need 64% to breakeven. There is $50k salary+$2K inflation+$11K return. However, if you have $200K capital, the 200K capital, the return will be dropped to 39%. So take a look at your past returns and see if you should continue tradnig or take a job.

By: dave

dave — Sat, 02 Dec 2006 04:39:40 +0000

Hi Ex eigineer,

Great article. I had an accident in the may sell off this year and my account got clipped for about 6% of it’s value. That may not sound like a lot but it was the second most I had ever lost on a trade. I was able to make it all back over the next 5 months however instead of doing really well this year my account will close slightly positive if things ended today. I really learned how important 1 position sizing is 2. money management is 3. Having an exit stategy before you put the trade on. As an aside I have been using IB and I have been really happy.

By: Declan Fallon

Declan Fallon — Sat, 02 Dec 2006 02:01:45 +0000

Its the curse of many to be stuck with took little money to work with. I took a stab at some number crunching to investigate some of the outcomes. Its a quick-and-dirty piece:

http://blog.fallondpicks.com/2006/12/low-capital-investing.html

Best wishes,
DJF

By: Michael

Michael — Fri, 01 Dec 2006 15:18:46 +0000

@Tyro,

I guess I’m a hybrid. Although I got my degree in EE, I never worked as one after graduating. I went into IT / programming… it’s pretty much the same mindset though.