@nithin My understanding is that account size can also be a critical factor in deciding trader success. In your personal experience what should be minimum capital required for someone to get into trading in Indian context. (Not necessarily full time trader) Also have you met any outliers who has done extremely well with relatively small capital? (No need for names just curious)
1 Like
@nithin Maybe we can wait for another 2 years or 10 years for a Stock Market crash. And invest during that time 
or wait for a debt-free stock to come near its intrinsic value and buy a little number of shares and wait for some time to buy more.
“There won’t be any scarcity of opportunities in your lifetime but there are days like you feel there aren’t any.” - Warren Buffett
1 Like
You can trade with any amount of capital, as long as you don’t have any pressure to generate income from trading. But if you want to trade futures and options where every contract is around Rs 5lks to 10lks, even though you need to just put a margin of around 1lk per lot or could buy options for much lesser, I’d say atleast Rs 5 to Rs 10lks in your account.
The reason for at least this much is because, as I have said in the post - the idea is to keep a stop not more than 1% of your trading capital per trade. With Rs 5lks that is Rs 5000 or say around 50 to 60 points if trading Nifty (1 lot). If you had only Rs 1lk, your stop would need to be around 10 points which is extremely tight. Closer the stop, higher the chances of getting chopped by stops.
If you are deciding to trade for a living, assuming you need to make atleast Rs 50k per month or Rs 6lks per year, I’d say atleast Rs 25 lakhs.
There are people who have done well with small capital, but the odds of that happening is much less. With lesser capital, you’d have to take riskier trades, higher the risk - higher the chance of things going wrong. I have seen many traders do well with small capital, but give it all up on a drawdown eventually as risk catches up, and if you are not following the right process it is tough to make money in the long run. Back in 2009 when we were sub-brokers of Reliance one of our clients turned his 1lk into Rs 2crores by buying out of the money call options just before we had two circuit up days after the election results. But over the next 6 months, lost the entire Rs 2crores by taking similar high-risk bets.
9 Likes
The issue here is, when prices crash, there is panic and seldom do we see retail investors put their money in stocks around those times.
4 Likes
@nithin
Bank nifty
500 points a month trading futures
RR : 2:1
Lots : 4*25=100qty
50K p.m with Capital of max 2Lks
I know one can’t compound with this return but I believe the returns can be achievable.
is my thinking correct or am I missing something?
I know it seems easy when you put it this way, but it ain’t. I can’t think of one person who has been able to do this. It is extremely hard to get to 500 points of Banknifty.
Btw, this approach of trying to make “X” amount of money is flawed in the first place. The target while trading has to be that you will follow all your rules to enter, exit, stop, etc. Money has to be a by-product. You can’t control how much money you will make, you can only control what you do on your trades. Focusing on money is usually detrimental to trading.
10 Likes
I 100% agree with your point. Even I don’t think of money. It has to be the process. This was just an example for your 50k with 25Lks example.
But I don’t see why 500 points can’t be made in bank nifty per month.
There was an average of 250 points between days high and low every day for the past 4 years. That comes around 4000-4500 points per month.
25% of that not achievable?
1 Like
Hmm… you could make it for a few months if you are lucky. But I don’t think it is possible to do this month on month. The months you don’t do it, there will be drawdowns which will eat into the months when you did. Retail traders btw generally suffer from hindsight bias.
4 Likes
Thanks for the reply.
So the solution To consistency is
- Less points and more lots?
- Doing swing rather than day trading?
- Doing less but more probable trades?
In any method, nobody can say he will not have drawdowns. How to do it consistently also by not being lucky?
1 Like
@nithin when you used to trade and today,what are the changes you see in volumes, liquidity, bid ask spread and other things?
and may I add. we are governed by the law of randomness.
We are all playing the guessing game, and trying to place the better guesses which has a slightly statistical advantage.
So, evidently one would have to be crazy enough to risk too much to find out if it works or not.
I don’t think there is one method that works for all. You have to figure what way of trading works the best for you. I think things you should do are what I have tried to mention in the post. One of them being, don’t lose more than 1% of your capital on a single trade. If you trade large size vis a vis your trading capital, you can keep hitting that 1% stop often.
1 Like
All the volumes have moved from Index futures, Stock F&O to Index options now. But this is good, trading index is when you have much higher odds of winning than when trading stocks (stocks has potential insiders who know more about the stock and news around it than you).
But othewise nothing much has changed.
1 Like
What was the brokerage you used to pay , how much of your profit got eaten by it, since discount Broking was not at that time I guess.
We had a sub-broker license with Reliance money from 2005. They had tried a low cost model - you pay Rs 2500, you could trade at Rs 15/trade for upto Rs 6 crores. Since we were a sub-broker, we used to get back 50% of the brokerage. Before Reliance money, I used to be a remisier with IIFL, brokerage was higher but some pass back as I was remisier. I started trading online using ICICI direct and that was bonkers in terms of brokerage, back in early 2000’s. But at that time every broker was expensive, not just ICICI.
Btw, I have said this before, while a lot of people think brokerage or STT/Taxes is the big cost, it isn’t. The biggest cost when trading actively is the impact cost (difference between bid - ask spread). If you buy and sell say 5 lots of Nifty July future, you could easily loose around 2 to 3 points in the spread itself. Almost Rs 750 to Rs 1000 on every trade. This compounds very quickly without the trader realizing, especially day traders who get in and out many times.
2 Likes
Yes and moreover traders dont’t realize it as you mentioned but is this cost somewhat controllable , can we could something do to control this since placing limit order has risk of trade not being executed , placing at market has highest impact.
If you are one of those how does a lot of buy/sells, make sure to stick to the most liquid contracts. And don’t keep buying and selling just for the heck of it. Trade only when you think there is an opportunity.
3 Likes
No way to get to know your order before it is placed. But it is possible for execution algo’s that are at Colo to place an order as soon as yours gets placed on the exchange. From the time your order gets placed on the exchange, it will take a few milli seconds (0.001second) before it updates on your market depth as you connect via internet. But the algo’s at the Colo can potentially execute orders in micro seconds (0.000001 second) and hence you might feel as if the order was placed just before your order. In low volume stock, there might be people using these execution algo’s to buy/sell with as little impact cost as possible. So these algo’s might be wired to place small quantities at best bid or best offer all the time.
3 Likes
@nithin
Thanks for the detailed reply for my previous question regarding account size.
I have a doubt regarding what you said about impact cost. Have any one done any study on this in Indian context- The effect of impact cost on strategy implementation. Also if I am doing some paper trading to analyse effectiveness of a trading strategy and I want some some simple methods to understand effect of impact cost on this strategy. What would you suggest? Will adding a certain expense component serve the purpose. If yes how much would be the optimal expense component(in percentage size of trade or so).
You can look at the contract your are trading to figure what typically impact cost could be for the size you are trying to trade (bid - ask spread). You can add that spread to your expense.
1 Like