E-mini Trading: How Much Money Do I Need To Get Started?
It is my belief that one of the major causes of new trader failure is entering the e-mini trading arena with poor training and undercapitalization
. These two problems in tandem exacerbate the problems each problem causes in its own right; in short, the sum of these two problems is greater than the problem caused by one of the problems alone.Why?
Traders who are poorly trained have one unmistakable trait; they tend to overtrade. I have observed this phenomenon throughout the course of my career. Traders who lack a solid e-mini trading foundation tend to trade too many contracts and trade too often. Of course, this issue alone is enough to get the average trader on the red side of the ledger, but add undercapitalization to the equation and you have the recipe for a very short e-mini trading career.
I believe that starting with less than a good trading course and proper sized account is essential to succeed:
While many traders start with accounts as small as $2,500, this puts undo pressure on a new trader to make every trade a winner. In my opinion, $5000 is a much better sized account with which to begin, and double that size is even better.
Most quality trading courses teach sound money management practices; these trading rules are essential to assure that you succeed in keeping your futures trading account balance at an optimal level.
It is never wise to risk more than 3% of your account balance on a given trade, and less is better. Yet it is not uncommon to see traders with a $2,500 account trading 3-4 contracts, which is far in excess of the recommended amount.
I dont want to infer that a new trader starting with a $2,500 balance cannot trade successfully. At that level, it is important for the trader to take fewer trades, with fewer contracts, and make sure the trades he or she enters are high probability in nature. I would point out that not all high probability trades result in winning trades, but they give you, as a trader, the best chance of success.
One final point; you should also allocate some funds to enroll in a quality trading course unless you have access to an experienced and successful mentor who is willing to share his knowledge and trading technique. Courses range from $1500-$15,000 and I have not found a solid correlation between the price of a course and the quality of the instruction. Find an instructor with whom you are comfortable and make sure you perform due diligence on the quality of the course and the reputation of the instructor.
In summary, I have stated that many traders start e-mini trading with too little capital and even less training. This is the formula for failure. Learn how to trade effectively and learn to how manage your futures trading account effectively.
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