Carl, a friend of mine, came into the stock market and in just one week, he blew 75% of his trading account. This is surprising because he spent a good eight months learning the ropes on the stock market and trading strategies. What’s even stranger is that all five trades of his were winners and he still ended up blowing a huge portion of his account. All because of this one thing…
Don’t blow 75% of your trading account because of brokerage!
You see, Carl started with a trading account of just R1,000. He was lucky to get into the market while it was going up..
And so, he bought five CFD trades which all of them went up. He did his calculations and saw if all goes well he can bank a R50 gain per trade.
All of Carl’s trade went up in his favour and so, he banked all of his trades.
He was thrilled to start his trading career off with winning trades!
But when he went to look at his portfolio’s profit and loss, what he saw shocked him!
Instead of being up a gain of 25% or R250, (R50 X 5 trades), he was 75% down of his trading portfolio!
And this is because, Carl forgot about one crucial thing!
He forgot about the minimum brokerage fees he had to pay to get in and out of his trades.
His broker’s minimum fee was R100 in and R100 out…
Just getting into out of his trade already cost him 20% of his trading portfolio per trade.
And after five trades, he had to pay 100% of his portfolio on brokerage alone!
Even though he made a R250 gain from the five trades, he was still down R750 in losses! All thanks to the total brokerage he had to pay!
So you can clearly see, brokerage can shrink your trading account very quickly. But the problem was Carl was trading too small and his broker wasn’t ripping him off.
Being undercapitalised as a trader can break your trading account!
So what is the minimum you should start trading with?
Well, if you put in R10,000 as start-up capital instead of R1,000, like Carl did, You’ll still have to pay the minimum R200 brokerage fee per trade ( R100 in and R100 out).
But the good news is that you’ll be down a lot less with a R10,000 trading account.
In fact, If you had a R10,000 trading account and you took five trades, you’d pay the R1,000 brokerage but you’ll only be down just 10% of your trading account.
And so you’ll still be left with 90% of your money to trade with!
But because you’d be trading larger positions, your gains would outweigh your brokerage costs. So instead of losing money with winning trades, you’ll actually make money even after brokerage.
Make sure you don’t undercapitalise, know the inevitable brokerage fees you’ll pay and your trading journey will be less stressful and more successful.
