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What is the minimum amount you need to invest in a trade in order to be profitable?

First, as a general rule, we recommend that you invest no more than 20-30% of your portfolio in a single trade.

Before trading, you should also establish how much you may commit to an individual trade. Keep in mind that there are numerous trading styles you can adopt: Intraday trades, short-term trades, mid-, and long-term trades. A basic approach is to calculate how many shares or contracts you are able to buy, and then to evaluate how much of a profit you need to generate per trade in order to at least cover your trading expenses.

In order to define the minimum required investment amount for a given trading strategy, a trader should:

  1. Know how much to commit to any given trade;
  2. Take brokerage commissions and expenses into account;
  3. Calculate other expenses associated with trading (membership fees, fees for real-time quotes and charts, etc.)

Here is an example: If you are able to buy 50 shares of QQQQ at $40 per share (i.e., commit $2000 to a single trade), then your profit requirement would be at least 1% ($20). This is the amount you would need to make at a minimum in order to cover your brokerage fees (2 transactions); additionally, at least another 1% would be required to cover other expenses, such as membership fees. In addition, as a trader you would obviously anticipate making a surplus profit (beyond simply covering your expenses) � this is after all the main purpose of trading.

Based on these approximate calculations, you would want the QQQQ to move at least 2 - 3% so that you could bank at least a profit of 1% after all trading-related expenses. However, if we also take into consideration that not every trade can be a winner (as no 100% successful trading system exists) - and if we additionally expect that our profitable trades should cover the expenses of our losing trades - we can derive a required 3 - 5% gain from a single QQQQ trade (based on a purchase of 50 shares).

Furthermore, assuming the noted 3 - 5% gain from a single QQQQ trade, it follows that someone who is in a position to invest no more than $2,000 into a single trade cannot realistically expect to trade this instrument on an intraday or short-term basis � it is highly unusual for the QQQQ to make a move of as much as 3 - 5% in a single session. This means that intraday and short-term trades would typically fail to cover your associated trading expenses. Based on an investment of no more than $2000 and an anticipated gain of 3 - 5%, a QQQQ trader should thus favor a mid-term trading approach, typically making about one trade per month. Longer-term trading strategies (making only a few trains per year) are obviously suitable in this case as well.

Now, let's use another example where a trader is able to commit $8,000 to a single trade (which would buy about 200 shares of the QQQQ at $40 per share). In this instance, the number we derive at for a minimal required move in the QQQQ that would allow you to cover all your trade commissions and other expenses is 0.2%. Since the QQQQ frequently move a half percent in a single session, traders able to invest sufficient funds to purchase 200 QQQQ shares would therefore be able to trade this instrument on a short-term basis.

While these are approximate calculations, they should give you a better understanding of how you can develop a personal trading strategy, and how you can define the minimum amounts required to trade an already existing trading system.

Remember, you alone are fully responsible for the decisions you make about the amount you should commit to a particular trading system or approach. You should also fully understand the risks involved in trading.

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The Information on the Site is provided for information purposes only. The Information is not intended to be and does not constitute financial advice or any other advice. The trading of stocks, futures, commodities, index futures or any other securities has potential rewards, and it also has potential risks involved. Trading may not be suitable for all users of this Website. Past performance is not necessarily an indication of future performance. You absolutely must make your own decisions before acting on any information obtained from this Website.

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