We writing this blog as this is the frequently asked logical question.
Let’s see How Many would answer this question.
Now to get actual answer of Capital Required, Let’s first understand first what is Capital in Stock Market.
Capital required is Total Risk we need to take to achieve desired Profits. Capital Required is not Risk we wish to take, its Risk we need to take.
Capital Required is not Trade Size, we may sometimes leverage in our intraday positions. but how much leverage we can take?
Leverage Allowed= Our Total Trade Size – Capital Required
So how to calculate Capital Required? Actually, how much capital we require is not dependent on nature of trader aggressive or conservative.
It depends on the 3 factors:
Let’s elaborate with simple example:
1st Factor: Profit Required
Here we assume we require Profit of Rs. 50,000/-p.m. so 6 Lacs p.a.
Assuming fix and variable Exps. = Rs. 1 Lac p.a.
So gross Profit: Rs. 7 Lacs p.a.
2nd Factor: Statistics of Trading Strategy
Now we have to calculate Required Expectancy Rate i.e. Average Profit Required Per Trade (Total Profit/ Total Trades) which comes Rs. 1,326 (7 lacs/528).
So, now we have three figures with us Average Profit Required Per Trade, Win Rate and Reward: Risk. Using these data and with the help of Expectancy Formula, we can Find Avg. profit and Avg. loss per trade we have to set while actual trading.
Profit per trade: 3,314
Loss Per Trade: 1,657
We have calculated above two figures using formula of expectancy:
Expectancy per trade
= (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
3rd Factor: Our Risk Profile
As we have come up with the Risk per trade, now we have to find total Risk which is also known as Capital Required. So, what should be Total Risk? We have a simple Trading Rule we cannot risk More than 1% of our capital in one day (Total of all trades in one day). That is, we should be in the game even if we incur loss for 100 consecutive days.
So according to above statistics if we risk 1,657 per trade to achieve profits on our trading strategy then we must have capital of Rs 1,65,720/-
Only this much capital required to Make 7 Lacs p.a.?
This is all paper Work yes
Practical figures when we trade comes very different then paper work we did.
Let’s understand Why Actual figures are many times differ from Planned figures.
You say you will make 528 trades in a year but actually you may just take 400 trades yearly. May be due to market consolidation or may be due to weak psychology you fail to trade many days.
Now out of these 400 trades, your 200 trades may not hit SL or Target and just closes near Cost or maybe you have to exit those trades later. So now you are just left with 200 trades with actual Profit or loss.
More Above all, it’s very tough and requires lots of practice to make accuracy of 60% with Reward: Risk of 2 times. Very few of traders are able to get such figures in reality.
Many of our clients use to ask us do u have 80% accuracy, 90% accuracy, all is bullshit. Even with 60% accuracy and 2:1 Reward: Risk can do miracles if followed sincerely with good number of trades, consistently. It could give wonderful ROI.
But clients, or traders himself, judge the intraday stock advisor or intraday trading tips potential in just 7-8 trades. Associate with any advisor with the mindset of doing at least 100 trades with them.
Calculate Your ROI to judge potential of Intraday trading tips and not Average Profit or Accuracy or Win Rates. If they are giving you good number of trades then you will require lesser capital and so your ROI would increase. In this game of intraday we require lesser capital compared to Positional traders. But in intraday trades many of the trades would be like fuss they will just not work as many times they don’t move in full day and may move next day these things are beyond your control. Important is ROI, which generally traders fail to calculate.
Associate Now with ABJ Finstocks Stock Advisor to Get Good ROI (Returns On Investment) on your intraday trading in Stocks, Nifty and Bank Nifty.