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How much to Invest into a Trading System?
With majority trading systems a trader has been put in front of a simple question "How much to invest in a system?" While the answer is simple, some of the traders could be confused about the minimum recommended for investing into a selected trading system.
The calculation of the minimum invested amount require to know a little bit about a trading system itself. First of all it is recommended to gather some basic statistics about this trading system. The average monthly profit would be first thing you need to know. If the average monthly return is negative then the recommended invested amount is zero. If average monthly return delivered by the system is positive then you need to know the expenses connected with exploitation of this trading system. As a rule the expenses include brokerage commissions that you are obligated to pay and subscription fee you may pay for having access to the trading signals generated by this system.
If you intend to subscribe to any online trading system you must know the price you pay. In case with brokerage commissions you need to know how many trades per month in average you may expect to be generated and executed by the selected trading system. In most cases the average number of trades could be found from the signals history. Of course past results do not guarantee future performance, yet the analysis of the history may give you at least average picture of what you may expect from the system. By knowing average number of trades per month and how much you pay to a broker for one transaction one easily may estimate how much will be spend on brokerage commissions.
The rule of calculating minimum recommended invested amount is very simple:
The profit delivered by a system should cover your trading expenses at least.
Example: if you decided to tray an online trading system that will cost $50 per month in membership fee and this system generates 3 signals a month, then if your broker charges you $10 per transaction you may expect to spend $110 per month on this system: $50 membership + 2 x 3 x $10 commissions (3 signals and each signal means 2 transactions). Now, when you know that you may spend each month about $110 you should expect that the trading system you selected will at least cover this trading expenses. If the trading system generated in the past 11% profit per month in average (possible number for options trading system) then it could be enough to start with $1,000 to tray this system. However, if the system had only 2% average monthly profit (stock trading system) in the past you may be looking towards $5,500 as a minimum required to try this system.
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