When trading in the stock market you should trade with money which you cannot afford to lose. It may sound contrary to other statement “invest with money you can give away 100%”. It is different from that because it is not for investing but for stock market trading.

A stock market trader should note the difference in probability and amount of risks associated with trading of stocks and investing in stocks. Trading stocks has less amount of risk per trade but it has high probability or certainty of risk. Every time you initiate a trade in a stock you are likely to lose in that trade most of the time but you control with stop loss orders to reduce the amount of risk.

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The rewards in short term trading can vary with strategies and are generally in proportion to the amount of risk. That is why you should be willing to take huge amount of risk only when both the amount of reward and the probability or chances of winning that reward is higher. In general you should trade with limited but still significant enough capital that will force you to focus on you trading constantly.

The stock market trading involves more probability risk than investing because in investing is generally done after thorough study and with money that one can give away 100%. In trading you should trade with money you cannot give away just like that. It should be significant enough so that you would put your mind to function all through the stock movement till you close it with a profit or stop loss.

Nevertheless this does not mean you should risk too huge a capital amount. It should be limited to the extent that you will reduce the amount of risk and also take sufficient risk to ensure constant focus on trading as if it cannot be ignored. The best way to do this is to find out the percentage of loss that is likely to result from stop loss order price, and equate it to the amount of money you are willing to risk for this trade and then use this to back calculate the amount of capital to be traded at any given time.

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