If you simplify trading to its basic form, it is simply, gambling. Now don’t get me wrong, its not the same and betting on a hand of black jack, or spinning the roulette wheel at the casino, but it is a form of risk.
You wouldn’t take all off your money to the casino and bet it on red, would you? That is unnecessary risk, and in trading, you want to avoid that as much as possible.
If you are new to trading (which if your reading this, you most likely are) then you should know beforehand what you are will to risk when you start day trading or swing trading. Keep it simple, and maybe even put it into your head that your trading money is what you can and are willing to lose, and lose it all perhaps.
Everyone has a risk level they should be aware of, based on if you want to be a full time trader (less risky, more conservative, grind it out approach) or a part time trader (more risk, another full time job for income, big gains quick).
I cannot tell you or even advise you on what level of risk you are going to take, or what you should be taking with your trading career, I can only tell you this. If you are able to trade with a level-head and have a good amount of risk on the trade, then that should be enough.
As soon, as your emotions take over and you start thinking “I could have bought a TV with the loss I am taking” or whatever material item you can think of, then you are risking too much and your trading and personal finances will take a substantial hit.
Let’s go ahead and use an example, I am going to actually use myself as the example so you can get a good idea of the level of risk I started taking.
Full Time Job = $2,000 Monthly
Rent and Other Bills = $1,700 Monthly
Disposable Income = $300 Monthly
No with the above amounts, I did not want to risk anything I couldn’t afford to lose, as that would effect my life in a much, much larger way, some may have more to risk, and some less, its all up to the person.
I decided to risk $1,000 initially when I started trading in 2010 and lost it all within a few months. Then I took $500 and lost it all again within a couple months, (I learned a lot during this time) but I never risked more than I could afford.
This most recent time I found my niche and how I could actually trade with only a $500 account and day trade, which I highly recommend this broker, if you are looking to day trade with as little as $500, because it is invaluable.
Only use your disposable income for trading, and treat that as maybe entertainment money, or whatever helps you deal with a potential loss you might take in the beginning. If you do this, you might be well on your way to being able to trade full-time and manage your risk like a pro.