This is the question most of the newbie trader ask in community, in your trading account how much money do you need to trade ? in this post we will touch each and every point of it.
In starting if you are a new trader then you motive should be to learn the market, how to trade, you should test different strategies, so in this case you don’t need too much of money. If you will come with a large amount and without knowing anything if you will put your money in trading then definitely you will loose your money.
Trading Account: The minimum capital
For learning purpose you should first start with eqity segment there you can simply buy the shares and sell the share with a small quantity so for it you can start with a small amount of 50,000 rupee.
If you know how market work , how to read chart and execute your trade in a good way then you can increase your capital, but some trader come with a small amount and with their profit slowly they try to multiply their capital, and this is a very good technique.
Role of leverage
Few months ago your broker have the choice, they provide 20 times to 30 times leverage to their trader to trade, in that case with a small amount you could have buy a large quantity.
Suppose you have 50,000 rupee to trade then with this amount with leverage you could buy 10 to 12 lakhs of shares, for an expert trader it was good , they could get the benefit of it, but for a new trader it was like a sucide, because with leverage their loss was high, and within 2 to 3 trade they lost their entire capital.
But now SEBI have removed the facility of leverage, now no broker can provide you leverage , and that is good , who newly come to market.
In derivative segment we have two types either we can trade in Futures or we can trade in Options.
Capital requirement for Futures
Future trading is very- very risky and rewarding segment, it is said if without knowing anything if you directly jump into future trading then it will destroy your future, that is hundred percent correct.
On the other side if you have the knowledge, and you trade with discipline and follow proper risk reward ratio then in future you can make multiple times of your money.
Now we come come to the point how much money do you need in your trading account to trade into future segment ?
Either to take position into index future (Nifty and Banknifty) and Stock Futures , the minimum capital you should keep in your trading account is 2 lakhs, because according to lot size and stock volatility different stock reqired different amount, but here with in 2 lakh of capital you can buy only one lot.
But if you are good and you know very well how to manage your trade then 5 lakh rupee is a good amount to start.
Here one thing I would like to tell you, if you buy your position for more than one day then you need extra capital than intraday.
Here is the complete list of required capital to trade in future segement Check here
Capital requirement for Options
Option trading is completely different than future trading , here again we have two choice, either you could be trade as a option buyer or Option seller or writer.
To sell or write the option either for Stock Options or Index Options, again you need to deploy a large capital, but to trade in one lot at least you should have 2 lakh rupee in your trading account, but there are several strategies like hedging, with the help of it you can increase your buying capacity.
This is the segment where you need very less capital to trade, because you only need to pay the premuium in option buying so to buy one lot if you have only 10,000 rupee in your trading account then you can also trade in one lot of Nifty or Bank nifty.
For stock options buying again it depends on the premium of the stock and their lot size.
Let’s explain it
Suppose you would like to buy one lot of Bank nifty , currently bank nifty is trading at 41000 level and you have choose the Strike price 41100 ,
and their call premium is at 300 rupees, then to buy one lot of bank nifty
you need total of 300* 25= 7500 rupees
Here in bank nifty one lot is equal to 25 quantity, and you premium is at 300 points so you need 7500 rupees to buy one lot.
Next example we take of Stock Options, so we have choosen a stock Reliance Ind, and stock is trading around 2500 rupees. So if you want to buy the call options of 2500 strike price, and if the premium would be 30 rupess and the lot size would be 500 rupee.
Then to buy one lot of Reliance you need to pay 30*500 = 15,000 rupee
But if you are good and you know very well how to manage your trade then you should start with 1 lakh rupee, and for option buying only use 20% of your deployed capital to trade keep remaining capital as it is.
Here we have tried to give you the basic idea about from how much capital is required to start your trade, and definitely in starting you should start with a small capital, later after getting expert you can maximize you capital, but always trade and follow a proper risk reward ratio, this will save you to wipe out your capital.
Because with a capital you will get several opportunities to trade but without capital you can only watch the market.
Nirmal is a NISM Certified Derivative Trader & the Founder of InvestandEarn.net (Financial Blog). He entered the world of Equity research to explore his interests in financial markets having 5+ Years of Experience in Share Market Trading & Investing. Nirmal frequently writes about Share Market Trading & Investment and publishes his personal view on the market. Drop him a mail at firstname.lastname@example.org.