Account Size

If you are looking to work for a large institution and to move millions of dollars around each day, you can skip this page because it does not apply yo you. Most likely, you will become part of a large team or you will become an execution trader, so the issues raised here will not be relevant to you because you will probably not be making independent decision about the trades you will be taking. If you are looking to trade a sub-account independently, then the issues here apply. Read on.

Most traders, given the choice, would accept the largest possible account size in their trading account, but is that an option? And if it is an option, is it really the best?

Starting Account Size

Most institutions will not give traders a choice as to their starting account size. Period. Financial institutions’ highest obligation is that of protecting the capital of its investors. The “desire” of any trader or group of traders to have a larger account so that the trader can make more money in performance fees is viewed unfavorably by these institutions.

Most likely, in order to get hired, you will need to demonstrate your trading returns through use of a demo account, often for several months, during which time you are not being compensated. Then, if you do land a job, it is most likely that you will be started at the very lowest account size until you can prove that you can manage risk as your account size increases.

So, in answer to the first question: no, it is unlikely that your input will be sought on your starting account size. It is most likely that you will be assigned an account size at the very lowest level and that it will be increased slowly over time and only if you show steady returns as your account size grows.

It would be wise for most traders to keep this in mind, as requesting a larger account size before you have proven yourself over months or years will not be favorably viewed by your boss.

Account Size Over Time

As with Starting account size, most institutions will not give traders a choice as to the change in their account size over time. The institution will typically set it at a standard level and allow it to grow in a proscribed fashion with strict limits. The reason for this is, once again, risk control. Financial institutions cannot take the risk that any given trader will begin to under perform as their account size increases – which is a definite phenomenon for a variety of reasons, some psychological and some functional (large lot orders do not fill as efficiently as small lot orders). There are some institutions which will take into account the trader’s input with regard to account size over time, but these are rare. And even these will expect to see steady performance over time before growing an account.

Less Is More

As alluded to above, there are various reasons why trading larger accounts can result in a lower return. One of those is purely functional. In any given market at any given time, there are a given number of contracts or shares available to buy or sell at the current price. Once those shares or contracts are filled, the price will move against the trader who is entering (or exiting) the market. For these reasons, larger accounts tend to trade with less profit. So, one of the things that your boss will be looking for is that your returns do not deteriorate as your account size increases. If it does, you may very well see a reduced account size until things stabilize. In these cases, the phrase “less is more” applies, and you should consider that, especially early on in any job. Other factors that can work against profitability in a larger account are psychological, because larger accounts can work in a contrarian fashion, just like the market itself. In these cases, it is sometimes self-expectation that gets the better of a trader. On the other hand, if you are truly a professional, then psychological factors should not play a role for you.

Take-Aways and Tips

• Most traders should not expect to have much of a say in their account size, whether starting or continuing.
• Small account sizes help some traders establish themselves with confidence before moving to larger live accounts.
• Accepting too large of an account size before you are ready can possibly cause you tolose your job.