Ep 136: How Much Money Do You Need to Get Started in Trading Stocks | How Much Can You Make?

May 18th, 2017

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Hey, this is Sasha Evdakov. I'm going to share with you how much money do you need to get started in trading. And I'll give you some insights on how much you can make.

In one of the posts, I've talked about the percentage of growth. Meaning the market goes up at a certain percentage. How much you can make based on the percentage that you make.

The other post took expenses into account. You are looking at movements and fluctuations within the stock market. Meaning how much can you make because a specific stock (let's say $100 per share) might move $1 or $2.

There're two different ways and approaches that you can take within that.

To get a precise answer, it comes down to this:

  • you are doing the homework and
  • understanding where you're at personally

Get Started Trading - What About Budget?

You could start trading at $500. I mean you could open up an investment account of $500. You could open up a margin account for $2500 at least. I believe that's what the current regulation is.

Of course, things may change in the future. But to get started to answer this question, I'll give you both of these scenarios.

You want to hear what is feasible and realistic. I'll give you percentage calculations and take into account active trading on a per stock basis. That way you'll see what you can make.

What Are The Expenses On a Day To Day Basis?

We have to take these into account. That way you can see as far as trading for a living is that also going to be sustainable for you.

Keep in mind some of these expenses are going to be different for everybody. Do your homework, do your due diligence and do some calculations. But I'm going to share with you the guideline or the process of how you can do it yourself.

You might have more categories in your personal life. I want to give you some ideas on where does that money go for. This is what a middle class or an average person might have. If you're dedicated and determined to save a lot more money, you could lower some of the things on housing.

I've rolled out a few different categories:

  • Housing
  • Utilities
  • Food
  • Transportation
  • Debt/Loan
  • Savings
  • Clothing
  • Entertainment
  • Taxes
  • Miscellaneous

Here is a list of what some people will pay depending on the city you live in. It also depends on the location or mortgage and so on.

Let's say anywhere between $600-$3000 a month could be your housing situation. If you're motivated, you could live in your car while you go to a job and accumulate a lot of money. However, that may not be suitable for everybody.

It might be from $150 to $500 per month. You also have food expenses. For people that maybe eat at home more frequently or budget-friendly could be $200 a month. Perhaps you have a single person household. But if you have more people in your family, it could be more expensive. In that case, you're going out to eat, and it could be $3,000.

When it comes to transportation, there is a different situation as well. If you're a person who walks to work and you don't need a car or a bus - it could be $100. Or it could be $800. If we are talking about student loans, debt, credit cards, medical bills it can be in this range - from $100 to $500.

When we talk about savings, it could be $0 for some people. And I say that because your savings could go back into your trading account. That could be your savings. Or it could be $500 or more where you have a separate savings account. That kind of account moves money away from your trading account.

Quick Note: I'm talking about all these items cost you money or move that money away from your investment account.

Look at your clothing. There might be two-three years where you don't need to buy clothing. For other people that are a little more active with clothing shopping, it could be more. It could be $500 a month. It could be $500 a day if you're spending $500 on jeans or some of those premium brands.

The same thing with entertainment. It could be $0 or $100 a month. It could be $10,000 a month. A buddy of mine went to Super Bowl and his tickets and all the time he spent there about ten thousand dollars for a day trip. The sky is the limit. In either case, it depends on how much entertainment cost you as well.

Now, it's time for taxes. This will be different for everybody if you take those things into account. And finally, miscellaneous expenses - put in a few dollars in there.

This is How To Think - The Right Attitude

There is one question you have to ask yourself.

What is your total?

If you're somewhere in that rough range, it could be somewhere around $3500. I know some people's mortgage is around $4000-$5000. That's a standard mortgage especially if you're living in somewhere like New York City or even LA.

Do your calculations depending on where you live and your situation. Come up with some numbers for yourself. That way you get a number.

In this example, I'll use $3500. If you're reading this post one or two years later, this might increase another 5%-10%. Keep that in an account. This is a starting point to get us to our next stage in the process. We want to see how do we make some calculations of how much money you will make.

Best Approaches To Calculating Earnings

There are two main approaches to calculating how much money you'll make. Now keep in mind whatever you make you also have taken to account these expenses. That's the right way if you're looking to see your profit. And if you need money for living and you using it from trading.

Quick tip: if you're trading for a living you'll have to take these expenses into account. If you're making some money elsewhere to pay for these expenses, then you could use that money. And slowly take the savings and build that account.

Percentage Way

The general average the market moves up, or you make about 8% on an annual or yearly basis. That equates to 0.75% monthly. This is what I like to look at.

I like to look at the month to month of what I'm making monthly. I don't usually look at a daily income. I don't do that even if I'm day trading. That is because you might have some bad days, days you might not also trade.

At the end of the month is what I look at because that's the end report. Maybe you're looking to be better and more active than the market. If you're looking to beat indexes, perhaps you're looking at 1% a month - or 12% a year. Maybe you're doing 2% a month, and that'll give you 24% a year.

I'm doing it linearly, so I'm doing it in a line fashion to keep numbers simple. Maybe you're putting that money back into play. I usually don't take that money into the account until next year. You would have an acceleration curve that's a little more exponential.

If we look on the screen, I will show you how this works depending on your starting account balance. Here we are in Excel. If we take a look at the first method as far as a percentage basis, this is the deal.

This is what you need for example:

  • Starting capital ($10,000)
  • Percentage Gain (1%)
  • Create a formula for calculations

I'll take the starting capital and add a couple $ signs so that way it always uses the starting capital. That way I'm creating a little formula to do some calculation.

Then I'll put that in there in that cell. Now, the next part is I'll take that and multiply that times our percentage gain. In the cell next to the right.

I'll put a few a $ signs in front of there. We're making 1% of $10,000 - it's $100 a month. Then I'll make a total account value $10100 in the cell on the right. I'll go to the next row and take the previous row (C4) and input it right there.

My starting balance is right there. If I fill this down you can see what I'll make is $101. And I'll drag this down as well. My total account value is $10201. You can format these for $, and this is how you can do it.

Select it > Go to Format Cells > Currency > Choose $

You can see if I'm making 1% that's how it would go. What I could do is continue to fill this down. That way you can see how many months this would take. If I'm down to about 50 months, this will give me about a $16,000 account total.

If I increase this to 3% per month, I'm looking to make:

  1. $300 the first month
  2. $309 the next month
  3. $318 the month after this

This is compounding it in. This is not taking into account that maybe I'm only using half my account. If I had a starting account value of $20,000 and just using $10,000 - that could be the case as well. After about 50 months you're up to $42,000 starting with a $10,000 account.

You might start with a $50,000 account. All of a sudden you're making $1,500 every single month. If you had a $250,000 account, making 3% is quite good and covers $3500 worth of living expenses without a problem.

Many people go in and have a large nest egg that they make from a job or starting their own business. Then if you're making 1%, 2%, 3% you're already the first month as long as you're consistent profitable. If you're looking at 3% a month, you're making $7500.

You can change this number to 1% then you're back down the $2500. These things will continue to grow. Within 50 months your account is $400,000 starting from $250,000. Start playing with these numbers depending on your real situation.

If you'd like to do a month calculation, you could do that as well. You can draw that down, and Excel will do some fantastic things for you.

The same thing here if you want to do the year you can do that. If you want to know how many years does it take to get to $1,000,000. If your starting point is $250,000 and you put 2.5% now, you can get there quick. For about 4.8 years. All these things are relative based on your calculations.

Calculating It Based on Stock

The other approach that we have is calculating it based on the stock. Let's say you're trading stocks and you have to know a few different things:

  1. Starting cash ($20,000)
  2. Price level ($30-$100)
  3. Movements

I only want to use half of the starting cash. Maybe you like to trade stocks in this range $30-$100. Now you have a price level.

If I'm doing a $50 stock and I only want to use half my account, that'll be 200 shares. Then what you do is you start looking at how often does this stock go up to $1, $2, $3.

A $50 stock - what's the average movement?

I'm looking at what's the average movement on price. I'm also looking at what's my win ratio. How often am I winning? How often am I even trading? Maybe you're only able to trade two days a week.

There's a lot of factors. How much are your losses? Are you losing quite a bit of those winning?

Some people might think: I win $500 every time, and then I went another $500, but then I lose $3,000. This could be a big problem. You do that calculation as well.

Let's take a look at that calculation.

The other approach to this is looking at how much you can make on a movement of the stock. Of course, to calculate how much you would make.

You could look at Starbucks.

You're trading around $50 to $60 stocks as an example — the full movement of this movement you can catch it in 14 days about $4. But let's say you don't pick the full move.

You catch in about six days work with that move about $1.4. Same thing maybe with a move over here again $2.21. Here you're looking at these moves.

You're not catching the full move. In this case it's about $1.4, $1.5, $1.2, $1.25 between 7 to 14 days. If you're trading a different stock, let's say LVS maybe you're catching $2.25 a little bit more.

Tesla example: In a week here or two you could have a $23 move. But the stock is more expensive.

In our example (Starbucks) you can modify the numbers for your needs. This is a basic Excel calculation if we are starting with $10,000 or $20,000. The amount points movement that you're getting - $1.5.

What happens here is you're taking $1.5, and you're doing it based on the amount that you can get. And those are the shares. Then I rounded it down. Take 325 shares. You take 325 shares, and that is what you can do. I multiply that times $1.5 every time you make a trade. This is a linear based approach, but it'll give you some insight.

Right there 487. That's the amount you make. I'll duplicate this number to the right cell. If I want to calculate it, this is on a per week basis. But if I did two trades a week, I'm making $1,000 every single week.

Then I take this and multiply that times week 1, week 2, week 3. This is our week and what I can do now is do this calculation.

Now we can grow that. Every week we multiply that times two so now I'm up to $1950 in profits. Then I'll go ahead and fill that. You can see by week nine your up in profits about $8775. You can continue filling this and say you want to get to 52 weeks - which is a year.

That way you're making $50,000. You're $50,000 in profits. That's another approach that you could take is to do some calculation. If you trade a little bit more or less, then these numbers would shift. Or you have to take into account the losses.

Let's say you're only doing one trade a week. Now all of a sudden this drops this down and about half. In 52 weeks you're making about $25,000.

All this will allow you to have a better approach to looking at these numbers:

  • Account value that you have
  • Type of stocks you're looking trade
  • How many points are you making on a trade basis
  • How many trades are you doing a week
  • Taking into account some losses
  • Seeing what is your end result
  • Doing some calculations

You can make on the right your account value growth. You start at $20,000. You continue to grow it, and in about a hundred weeks you'd have $68,000.

The whole point is to give you some ideas on how to calculate the approach to seeing how much you can make. And then also how much money do you need to get started.

You could start at $500, but if you're looking to account for those living expenses, then you have to take into account the profitability or the profit potentials.

Don't forget to take into account the losses, expenses, taxes and those kinds of things. This is a starting point for you to do your homework.

I hope this gives you some insight into doing your calculations of how much money do you need to start with. Well, you could start with something as simple as $500, $2,500. It could be $10,000 $20,000. If you want to trade for a living, you have to know your living expenses first.

You want to get a gauge of how much money you can make.

Well, here are two basic approaches:

  1. You could do the percentage way
  2. You could do calculations based on the stocks

The fundamental question for you: How much is your starting capital?

If you don't have $1,000 to start, how much are you making on a per share or per trade basis?

You might be using half of your account. How much are those losses? How often are you trading?

Pro Tip: Take all those things into account. Do your homework. I can't give you a direct answer. Everybody's starting at a different point. Every person has different expenses.

Final Word

Take these two basic approaches. Spend 10-15 minutes of your time and come up with a number. That way you're more precise.

You'll be even more precise if you have some trading history of stocks you like to trade. And you want to calculate it this way. Or maybe the percentage of return that you're making on a month-to-month basis.

If you have that trade history, you'll even be more precise. Use one of those two approaches and focus on your situation.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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