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# Is \$1000 Enough to Start Trading?

Last Updated: June 29, 2020

By Rayner Teo

You don’t have a ton of money to spare.

Perhaps you’ve justÂ started working.

Or maybeÂ you’re still studying.

ButÂ you’re wondering…

Can I start trading with \$1000?

The answer is,Â yes and no. It depends on the instruments you’re trying to trade.

In this post, I’ll share with you theÂ financial instruments which are feasible to trade with a \$1000 account and those which are not.

Trading refers to the buying and selling of financial securities, in an attempt to earn a profit over time.

The various types of trading are:

Swing trading traders who seek to capture swings in the market, typically holding their trades for few days to weeks.

Position trading traders who seek to capture trends in the market, typically holding trades for weeks to months.

In order to be profitable, you need to an edge in the markets and allows the law of large number to work in your favor.

You’re probably wondering, what is an edge?

An edge is when you have a set of trading rulesÂ that yields a positive expectancy over time.

Expectancy can be defined as:

(Winning % * Average win) â€“ (Losing % * Average loss) â€“ (Commission +Â slippage)

If you have a positive expectancy after 100 trades, then you possibly have an edge in the markets.

But wait…

Having an edge alone is not enough.

You also need to allow the law of large number to work in your favor.

What is that exactly?

## The law of large number and whyÂ itÂ matters

The law of large numbers is a theorem that describes the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number of trials should be close to the expected value and will tend to become closer as more trials are performed. â€“ Probability Theory

In other words,Â your trading results are random in the short run but will be closer to your expected value in the long run.

This means:

Even if you have an edge in the markets, you can expect to lose over the next 10 trades.

ButÂ after 100 trades or more you can expect to be close to your positive expectancy.

DoÂ this:

Toss your coin 10 times and checkÂ how many percent of the timeÂ it comes up head or tail.

Now toss your coin 100 times and checkÂ how many percent of the time it comes up head or tail.

Do this simple exercise and you’d understand what the law of large number is all about.

Now here comesÂ the importantÂ part…

## Proper risk management so you don’t blow up your account

This means you will encounter losing streaks. And the last thing you want is to empty your trading account during a losing streak.

Looking at the risk of ruin table, if you lose 50% of your trading capital, you need to make back 100% just to break even.

So how do you prevent the risk of ruin?

Practise strict risk management.

Here’s an example:

If you have \$1000 account, this means you cannot lose more than \$10 on each trade.

Because 1% of \$1000 = \$10

Now with only \$10 to risk perÂ trade, what can you trade?

## WhichÂ financial instruments can youÂ trade?

Following the 1% rule will prevent your risk of ruin.

ButÂ given a \$1000Â account size, it reduces yourÂ option to trade different financial instruments.

Let’s analyze:

### Stocks

Minimum size: 100 shares

Transaction cost: \$50 per round trip (round trip means buy and sell)

The transaction cost itself is more than your risk per trade. Recall you can only risk \$10 per trade.

Your transaction costs eat up 5% of your return before you’ve even started trading. And if you’re making 40 trades per year, you need a return of 200% just to break even.

Clearly trading stocksÂ is not feasible.

### Futures

Minimum size: 1 lot

Transaction cost: \$10 per round trip

Your transaction costs eat up 1% of your return before you’ve even started trading. And if you’re making 40 trades per year, you need a return of 40% just to break even.

Clearly, trading futures is not feasible either.

### Forex

Minimum size: 1000 units

Transaction cost:Â Average 3 pips (which is about 30 cents)

Now you’re onto something.

Let’s assume:

Your trade requiresÂ a stop loss of 50 pips. Since each pip is worth 10 cents, this equates to a risk of \$5.

…your total risk is \$5 + 30 centsÂ = \$5.3 (This amount is lower than the \$10 risk per trade we set earlier)

Trading Forex is feasible with a \$1000 account.

If you want to know which instruments you can trade safely, just do this:

1. CalculateÂ how much you will lose if you get stopped out of your trade

Now you may wonder:

How much can I turn \$1000 into?

## This is the truth…

The reality of trading is this…

You need money to make money.

If you have a profitable trading system averaging 15% return a year:

\$1000 account will makeÂ you \$150.

\$10,000 account will makeÂ you \$1500.

\$100,000 account will makeÂ you \$15,000.

\$1m account will makeÂ you \$150,000.

But I’ve heard stories of traders turning \$1000 into \$100,000…

It’s possible. But they convenientlyÂ forget to tell you the number of trading accounts they blow up along the way.

#1: What timeframe do you suggest for a \$1,000 capital since daily candles can be quite long and the 1% rule would mean that the stop loss is extremely tight?

If you have a \$1,000 trading account and you risk 1%, that would be \$10. So if you go with a broker which offers nano-lots, it might be possible to be trading off the Daily timeframe.

Else, you can go into the 4-Hour timeframe.

#2: With a \$1,000 account, will I be able to trade CFDs of markets like wheat, cocoa, oil, metals, bonds, etc.?

It depends on the broker and the margin required to trade the CFDs of those markets.

## Conclusion

If you want to be a consistently profitable trader, you must understand what is yourÂ edge, and how the law of large number works.

You willÂ encounter losing streaks, and only proper risk management willÂ prevent the risk of ruin.

A guideline is to risk no more than 1% of your account on each trade.

But if you have \$1000,Â only the Forex market is feasibleÂ to trade, and still followÂ proper risk management.

The other markets will incur a higher transaction costÂ and the minimum size is too large relative to your \$1000 account.

So, what else can you trade with a \$1000 account?

Do you want to learn a new trading strategy that allows you to profit in bull &Â bear markets?Â

In my FREE trading course (valued at \$48), IÂ will teach you this powerful trading strategy step by step, along with charts and examples.

Yes that’s a good one, thanks for sharing here ðŸ™‚

Rayner

• Hidayat says:

Standard Chartered has no commission fee, just small charges. \$1000 worth of singapore stocks will most likely incur \$5 worth of fees I think. You can only buy stocks and the currency spread is wide if you need to convert currencies to buy foreign stocks. User interface is not as good as a brokerage too. A good place to start out and understand one’s risk appetite.

• Umair says:

Are you talking about standard chartered bank? If yes then please let me know website and some details.

I have back account there but in different country.

Thanks.

• Hello Hidayat,

Thanks for sharing. I believe that will be useful for stock traders in Singapore.

Hope to hear more from you in the near future ðŸ™‚

Rayner

• numberator says:

Hi Rayner!

Thanks for sharing!

What timeframe do you suggest for a \$1000 capital? Because daily candles can be quite long and the 1% rule means that the stop loss is extremely tight.

• Hi numberator,

Time frame does not make much of an impact in forex.

Because you can one trade micro lot which is 10 cents a pip. Some broker even offer nano lots where you can trade even a smaller pip value than that.

So with a larger stoploss, you’d want to reduce your position size, to still keep your risk constant.

You can look at this position sizing calculator here.

Rayner

• Chaplainrick says:

Nice discussion and it is helpful! But now that you have brought this subject up, you have me questioning whether I would be able to trade all the markets you trade with a \$1,000 account. I mostly trade Forex and have minimal exposure to Sugar, Oil, and Gold according to past reviews by you. I am gearing up to increase my exposure to other Markets in order to increase the possibility of finding a trend as you have suggested in the the past.

So, with a \$1,000 account will I be able to trade all the markets you trade like, Wheat, Cocoa, Oil, Metals, Futures, Bonds, S&P, etc., etc.? And if not, what would be the minimum amount I should have in my account to be able to trade all the Markets you trade?

Chaplainrick

• Hey Chaplainrick,

This would vary from broker who offers CFDs.

Because when trading CFDs their pip value isn’t fix unlike the forex markets.

So what you can do is to check:

If both 1 & 2 are less than 1% of your trading account, then you can trade it.

If they’re larger than 1%, then you either need to risk a larger % or increase your account size.

Rayner

• Shlomi says:

Hi Rayner,

Shlomi

• michael garzon says:

what about a \$200 account? is that enough to start trading forex using daily charts?

• Hi Michael,

With \$200, it may be a little tight unless you can trade nano lots.

Rayner

• Cornelis says:

First of all i want to compliment and thank you for sharing your experience and knowledge on trading.
I am a newbie on trading, got interested in it this summer and every day i am trying to learn on this matter. There is much info available on the internet but as you say also what is the quality of much what i read .
Trend following looks promising but i was wondering if it is possible to use on a small account when you have to diversify and hold several positions for a longer time. Maybe it’s better to concentrate on swing trading? At the moment i’m testing several setups and systems on forex cfd’s.
Also i have a question on SR lines. One of the rules is no expectations. What is the purpose of these lines then?

Regards,

Cornelis

• Hello Cornelis,

If you want to adopt a trend following approach with a small account, then it would be prudent to trade forex and CFDs.

Sorry I didn’t understand the part of “no expectations”, care to elaborate more?

Rayner

• Cornelis says:

Hi Rayner,

First of all a happy new year to you and everyone and good trading!
Sorry i used the wrong words i think. The first of the 5 rules you mention is “zero prediction”. What about Support-Resistance lines/areas or other kind os lines people draw? Doesn’t that make you try to predict something that often doesn’t happen? I know that counts for MA lines too, but SR lines i have to draw myself and are more dependent on skill etc.

• Hello Cornelis,

Happy new year!

Okay I get what you mean. I’ll look at SR still.

But generally in an uptrend, resistance tends to be broken, so I’ll tend to ignore it. Vice versa for downtrend.

Rayner

• glen says:

Hi rayner,

do you know of any brokerages that offers micro lots e,g, \$1000 lot size.

Cause my philips account only offers mini lots at \$10 000 per lot.

• Hello Glen,

Most forex brokers would offer micro lots. If you can’t find one, just drop me an email and I’ll suggest a few.

Rayner