Minimum Invested in System
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By selecting an online trading system the most common question is how much to invest in this system. This question is very simple, yet, many traders could be confused and do not know how to calculate minimum invested amount for a particular trading system.
The calculations are very simple. The main criteria are that the profit received from investing into any trading system has to cover at least trading expenses connected with using this trading system. As a rule there only two types of the expenses: a) brokerage commissions and b) subscription fee. Every trader has to pay brokerage commissions and if you subscribe to an online trading system you usually are asked to pay subscription or membership fee for access to the signals, alerts or other trade triggering information.
With majority of online trading systems, the subscription fee is based on the monthly recurring payment and even if it has only yearly payment, you may easily define your monthly subscription expenses by dividing yearly payment by twelve. To estimate how much you may pay brokerage commissions you need to know how often a trading system you are interesting in generates trades and you need to know how much your broker charges you for buying and selling. The average number of trades per month could be obtained from the history of trading system you consider to use. Of course past results do not guarantee future performance, yet the analysis of the history may give you at least average picture of what you may expect from the system.
For instance, if you decided to tray an online trading system that will cost $50 per month in membership fee and this system generates 3 signals a month, then if your broker charges you $10 per transaction you may expect to spend $110 per month on this system: $50 membership + 2 x 3 x $10 commissions (3 signals and each signal means 2 transactions). Now, when you know that you may spend each month about $110 you should expect that the trading system you selected will at least cover this trading expenses. If the trading system generated in the past 11% profit per month in average (possible number for options trading system) then it could be enough to start with $1,000 to tray this system. However, if the system had only 2% average monthly profit (stock trading system) in the past you may be looking towards $5,500 as a minimum required to try this system.
This is all you need to know in order to define required minimum amount for any trading system. |
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Author Resource:-
Find out about technical analysis of different indicators applied to the S&P 500, NASDAQ 100 and DJI to create index trading systems.
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By :
Viktor Ka
Submitted
2010-03-09 18:49:45 |
Article From Article Mayhem
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