How Much Money Can You Earn Through Trading?

If you start trading with Rs. 10,000 capital, practically, how much can you earn from market within 10 years? Well, this honest article can answer this question.

Thu Nov 25, 2021

(2 minute read)
If you start trading with Rs. 10,000 capital, practically, how much can you earn from market within 10 years? Well, this honest article can answer this question.
Theoretically speaking, there is no limit to earn money in the market. You can literally double your capital every week if you buy options in the correct direction but that is seldom going to happen.
Let's talk practical. I don't want to keep you in 'fools' paradise' and don't want to show you a 'gloomy picture'. At tradingwithabhijeet, I have vowed to give my honest opinion to the traders without sugar coating.
I want to tell you real numbers with real statistics.
You need to understand 5 things in order to answer this question namely:
1. Trading expectancy
2. Trading Frequency
3. Account Size
4. Bet Size
5. Compounding
Let's now understand all these concepts one by one
1. Trading Expectancy
Simply speaking, trading expectancy is the average return (in rupee term) for each trade, including wins and losses in long run.
Suppose your win ratio is 20% and risk to reward ratio is 1:10. When you win, you normally take Rs. 1000 as profit and when you lose, you take Rs. 100 as a loss (remember 1:10 risk:reward). With this information, we can calculate the trade expectancy using following formula
Trade Expectancy = (win%*Average Win Size)-(Loss%*Average Loss Size)
Trade Expectancy = (20%*Rs.1000)-(80%*Rs.100)
Trade Expectancy = Rs.120
It means, on an average, you are going to earn Rs. 120 on each trade in long run.
2. Trading Frequency
Trading frequency denotes the number of trades that you make in a year. So, you have trade expectancy of Rs. 120 but if you make 10 trades in a year, you will earn 10*120 = Rs.1200 in a year. However, if you make 100 trades in a year, you will earn 100*120 = Rs.12,000 and if you make 500 trades in a year, you can make Rs. 60,000.
Now you get it!
So, it is not enough to just a have a good trading expectancy. If you are going to make fewer trades, it won't earn you much.
Just imagine, you have expectancy of Rs. 1000 but you make only 5 trades per year. You earn only Rs. 5000
But with Rs. 200 as expectancy, if you make 200 trades, you will earn Rs. 40,000.
Got it?
3. Account Size
Let me ask you a question. How much capital do you need to have trading expectancy of Rs. 100?
You will say, somewhere near Rs. 10,000 (1% of capital right?).
But, if you want to increase the expectancy to Rs. 1000, can you do it with Rs. 10,000 capital.
Not really!
You will need a bigger capital to have a higher trade expectancy; somewhere near Rs. 1,00,000, isn't it?
So account size also matters while earning profit. It is the capital that you are using while makinga trade. Bigger the capital, higher the expectancy.
4. Bet Size
Do you need Rs. 1,00,000 capital to put a bet of Rs. 1,00,000?
You can have Rs. 50,000 and still bet Rs. 1,00,000. That's called leverage!
The more leverage you take, the more you can earn from the market (Am I sounding like an amateur? Guh!).
Nonetheless, you can increase the earnings by increasing the leverage but be cautious not to over leverage the position and throw risk manage in trash. A manageable leverage is always helpful. You should strike balance between these.
5. Compounding
In this end, this is the magic wand. Compound your capital and profits and boom! You have a rapidly growing account with exponential growth marching to North.
If you keep investing what you earned, you can have a chance of very rapid growth of your account.
In the end, to put all the things in perspective, if you have Capital of Rs. 50,000
Bet size of Rs. 1,00,000 (leverage of 2x)
Trade expectancy of Rs. 500
Trading frequency of 200 (one trade per day)
At the end of Year 1, your profit would be Rs. 1,00,000 (200*500)
Now if you compound this (put the profit back in the original capital)
At the end of Year 2, you have Rs. 4,50,000
At the end of Year 5, you have Rs. 1,21,50,000
At the end of Year 10, you have Rs. 2,95,24,50,000!!!
Does that sound too much!
Well, maths is always right.
You can always tweak the figures to get a realistic figures.
But hey!
I am just telling you the potential of this game.
Its huge! Isn't it!
Let me know in the comment box...

Dr. Abhijeet Birari
Expert, Trader, Trainer

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