One of the questions we frequently get is, "how much money do I need to start trading?"

I could give a glib answer and say you can start with $50 (or less) which is completely true. In today's world of commission free brokerages and cheap products, you could start with very little and try to build up your account. Moreover, there is no shortage of YouTube videos out there to convince you that you can grow a micro account into a fortune by following their lead and buying their products. Maybe you're one of the lucky ones who does do that - there's a great book on this type of person - but I wouldn't count on it. Most people aren't looking for an absolute minimum account size to start with, however. The question behind the question is: "How much money should I put into my trading account to achieve to my goals?" Framed this way, we realize there's no "right" answer to this question. But it's a more helpful question because it allows you to reflect on why you want to trade so you can be more discerning about the products you buy and the advice you follow. I am going to follow the process I've learned when speaking with people to answer this question and walk through it with a hypothetical individual for example. First, the standard disclaimer: This is not financial advice. All investments involve risk of loss. Speak to a licensed financial professional. With that out of the way, let's proceed to the first step. ## Start with "Why?" Why do you want to trade? Do you want to supplement your income? Do you want to quit your job and trade full-time? Do you want to build your trading accounts for your retirement? Is it just for the fun of it? Whatever your motivation, we can do some quick math to ballpark how much you should have. Meet Tim. Tim is an engineer who wants to trade to supplement his income. Eventually, Tim wants to transition out of his job and start a small business. He estimates he needs to save$150k in order to open his business.

His timeline is flexible - the sooner, the better - but if it takes 7-10 years to get there, he's comfortable with that; Tim understands that you don't build wealth overnight.

In the table below, we show how much starting capital Tim needs to hit his goal by year (left column) and net annual return (top row).

These are just simple projections, but it gives us a good feel for how much you could start working with now in order to achieve a certain result in the future.

5% 7.5% 10% 12.5% 15% 17.5% 20% 25%
3 $129,576$120,744 $112,697$105,350 $98,627$92,465 $86,806$76,800
5 $117,529$104,484 $93,138$83,239 $74,577$66,973 $60,282$49,152
7 $106,602$90,413 $76,974$65,769 $56,391$48,509 $41,862$31,457
10 $92,087$72,779 $57,831$46,192 $37,078$29,903 $24,226$16,106

I don't know what your goals are or your starting capital, but just doing some simple math shows that steady compounding at even 10%/year isn't going to catapult you to your dreams anytime soon unless you're already starting with a reasonable chunk of cash you're willing to put at risk.

Likewise, if you want to earn an income from your trading to replace your current job, you probably need to have a decent amount of money already saved and ready to go. That doesn't mean you can't start today and work your way up, but rather, you need to be realistic about your expectations.

For example, say you devise a strategy that you think can get you 12%/year net of all fees and taxes (can't forget those!). You're making $75k/year and want to be able to transition to full-time trading without hampering your current income. That means you're going to need at least$625k/year to make that goal work today (and I'd argue you need more because a 12% annual average return doesn't mean you're going to make 12% every year, often times you'll be below that level).

Again, you can start now and work up to that - which would probably be a good idea to gain experience as you save - but forget quitting and thinking your $10k (or$100k) account is going to take you where you want to go in the time you want to make it there.

There's a chance you could lose your entire trading account. In fact, a lot of successful traders have done that (they then became successful because they learned from their mistakes).

How much could you stand to lose assuming your account goes to 0?

## How much do you need?

Hopefully you can see that there's no "right" answer to this question. It depends on you and your personal situation.

If thinking through these questions discourages you from opening an account and trading, that's good. You probably weren't cut out for it anyway and I'm glad I could save you the trouble and frustration of losing your savings.

If you're still intrigued but not sure you have enough, I'd say to keep working at it. You may be able to find some low-cost products that can teach you the ropes and get you off the ground. Over time, you can build and grow as you learn more about trading and yourself.

We make a lot of resources freely available to help teach people about systematic trading and investing. If you're interested in more, check out our tutorials or sign up here to get on our email list.