Is $1000 Enough to Start Trading? (2024)

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

Perhaps you’ve juststarted working.

Or maybeyou’re still studying.

Butyou’re wondering…

Can I start trading with $1000?

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

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

But first, let’s understand what trading is all about…

What is trading?

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:

Day trading – traders who seek to capture intraday volatility, typically closing their trades within a day.

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?

How to start trading: Understand the elusive edge traders are talking about

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

Expectancy can be defined as:

(Winning % * Average win) – (Losing % * Average loss) – (Commission +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 to know how to start trading.

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 whyitmatters

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. – Probability Theory

In other words,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.

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

Dothis:

Toss your coin 10 times and checkhow many percent of the timeit comes up head or tail.

Now toss your coin 100 times and checkhow 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.

Knowing how to start trading is not enough, you must also know how to survive trading.

Now here comesthe importantpart…

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

Now that you’ve realized your trading results are random in the short run, how does this impactyour trading?

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.

Risk no more than 1% of your account on each trade.

Here’s an example:

If you are starting to swing trade with 1000 dollars account, this means you cannot lose more than $10 on each trade.

Because 1% of $1000 = $10

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

Whichfinancial instruments can youtrade?

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

Butgiven a $1000account size, it reduces youroption 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 stocksis 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:Average 3 pips (which is about 30 cents)

Now you’re onto something.

Your transaction cost is now a fraction of your risk per trade.

Let’s assume:

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

Adding transaction cost…

…your total risk is $5 + 30 cents= $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. Calculatehow much you will lose if you get stopped out of your trade

2. Calculate your transaction cost

Add 1 & 2together, if it’s below 1% of your trading account, the instrumentis feasible to trade.

You could start by swing trading with 1000 bucks on the higher timeframe in Forex if you’re just starting out.

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 makeyou $150.

$10,000 account will makeyou $1500.

$100,000 account will makeyou $15,000.

$1m account will makeyou $150,000.

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

Some YouTube gurus even boast about day trading with 1000 bucks…

Some of you might be wondering how to start day trading with 1000 bucks because it looks so easy and exciting from what these YouTubers are doing.

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

As a new trader, I would rather you do swing trading with 1000 bucks on the higher timeframe to learn and earn—slowly but consistently.

Frequently asked questions

#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.

Avoid going lower than that or even attempt day trading with 1000 bucks, you’re likely going to be whipsawed out of your position as a newbie.

#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

Trading is more than just random buying/selling.

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

You willencounter losing streaks, and only proper risk management willprevent the risk of ruin.

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

But if you have $1000,only the Forex market is feasibleto trade, and still followproper risk management.

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

Putting it altogether…

Imagine if you start to swing trade with 1000 dollars in Forex, then having proper risk management will allow you to survive and let the law of large numbers play out.

Over time, you can find your edge in the markets and be consistently profitable from there.

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 &bear markets?

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

You can download it here for FREE.