Trading capital refers to the funds a trader has available for them to buy and sell various assets on the global financial markets. Without trading capital, it is not possible to be a trader.
Many brokers, including CFI, allow you to start trading with no minimum deposit.
A trader should never deposit more money to their trading account than they would be willing to lose.
The 1% rule is a rule of thumb which many successful traders follow. This rule advises that you should never put more than 1% of your trading capital into a single trade position. Say, for example, you have $1000 capital in your account: you should not put more than 1%, or $10, in your position in any given asset you are trading. If your trading account balance is less than $100,000, the 1% rule is a good guideline, though some traders with large balances can afford to go up to 2%.
Remember: as your account balance dwindles, so does your position in the market. So, the best way to keep losses at bay is to stick with a risk below 2% so that you do not lose a huge amount of your trading account on one or two trading deals that go badly.
The expected return is the amount you expect to gain if all goes well, as well as the amount you expect to lose if the trade turns against you.
Calculating your possible loss or gain from a trading deal is an important technique. It helps you to rationalize your trade by forcing you to think through them carefully and enables you to compare different trades systematically and select the ones with high profitability potential.
Key takeaways:
- Trading capital refers to the funds a trader has available for them to buy and sell various assets on the global financial markets.
- Never put more than 1% of your trading capital into a single trade position.
- If you would be unable to cope with the potential loss, do not take the risk.