Why having large capital is advantageous to trading
Excess capital is the primary means of navigating around a trade which is moving against you. In a very basic case, consider a long position moving against you. With additional capital you could average in as the price drops or you could write options against your position. If you don't have the capital to handle when (not if) a trade move against you then you're at a significant disadvantage as your only option may be a liquidation. It is a general truism but the reasons are that the rules change dramatically when you simply have more capital. Here are some examples, limited to particular kinds of markets: Under $2,000 in capital Nobody is going to offer you a margin account, and if you do get one it isn't with the best broker on commissions and other capabilities. So this means cash only trading, enjoy your 3 business day settlement periods. This means no shorting, confining a trader to only buy and hold strategies, making them more dependent on luck than a more capable trader. This means it is more expensive to buy stock, since you have to put down 100% of the cash to hold a share, whereas someone with more money puts down less capital to hold the exact same number of shares. This means no covered options strategies or spreads, again limiting the market directions where a trader could earn Under $25,000 in capital In the stock market, the pattern day trader rule applies to retail margin accounts with a balance under $25,000 and this severally limits the kinds of trades you are able to take because of the limit in the number of trades you can take in a given time period. Forget managing a multi-leg option position when the market isn't moving your direction. Under $125,000 in capital Worse margin rules. You excluded portfolio margin from your post, but it is a key part of the answer Over $1,000,000 in capital Participate in private placements, regulation D offerings reserved for accredited investors. These days, as buy and hold investments, these generally have more growth potential than publicly traded offerings. Over $5,000,000 in capital You can easily get the compliance and risk manager to turn the other way on margin rules. This is not conjecture, leverage up to infinity, try not to bankrupt yourself and the trading firm. You wouldn't want to trade with too small amount of capital - it becomes harder and more expensive to diversify with a small account. Also, the bigger the account the more discounts and special may be offered by your broker (especially if you are a frequent trader).  You are also able to trade more often, and have a buffer against a few losses in a row not wiping out your entire account.
The answer is to your question is somewhat complicated. You will be unable to compete with the firms traditionally associated with High Frequency Trading in any of their strategies. Most of these strategies which involve marketing making, latency arbitrage, and rebate collection. The amount of engineering required to build the infrastructure required to run this at scale makes it something which can only be undertaken by a team of highly skilled engineers. Indeed, the advantage of firms competing in this space such as TradeBot, TradeWorx, and Getco comes from this infrastructure as most of the strategies that are developed are necessarily simple due to the latency requirements. Now if you expand the definition of HFT to include all computerized automated trading you most certainly can build strategies that are profitable. It is not something that you probably want to tackle on your own but I know of a couple of people that did go it alone successfully for a couple of years before joining an established firm to run a book for them. In order to be successful you will most likely need to develop a unique strategies. The good news is because that you are trying to deploy a very tiny amount of capital you can engage in trades that larger firms would not because the strategies cannot hold enough capital relative to the firms capital base.  I am the co-founder of a small trading firm that successfully trades the US Equities and Equity Derivatives markets. A couple of things to note is that if you want to do this you should consider building a real business. Having some more smart brains around you will help. You don't need exchange colocation for all strategies. Many firms, including ours, colocate in a data center that simply has proximity to the exchanges data centers. You will need to keep things simple to be effective.  Don't except all the group think that this is impossible. It is possible although as a single individual it will be more difficult. It will require long, long hours as you climb the algorithmic trading learning curve. Good luck. There are many reasons for buying new versus used vehicles. Price is not the only factor.  This is an individual decision. Although interesting to examine from a macro perspective, each vehicle purchase is made by an individual, weighing many factors that vary in importance by that individual, based upon their specific needs and values. I have purchased both new and used cars, and I have weighted each of these factors as part of each decision (and the relative weightings have varied based upon my individual situation). Read Freakonomics to gain a better understanding of the reasons why you cannot find a good used car. The summary is the imbalance of knowledge between the buyer and seller, and the lack of trust. Although much of economics assumes perfect market information, margin (profit) comes from uncertainty, or an imbalance of knowledge.  Buying a used car requires a certain amount of faith in people, and you cannot always trust the trading partner to be honest. Price - The price, or more precisely, the value proposition of the vehicle is a large concern for many of us (larger than we might prefer that it be). Selection - A buyer has the largest selection of vehicles when they shop for a new vehicle. Finding the color, features, and upgrades that you want on your vehicle can be much harder, even impossible, for the used buyer. And once you have found the exact vehicle you want, now you have to determine whether the vehicle has problems, and can be purchased at your price. Preference - A buyer may simply prefer to have a vehicle that looks new, smells new, is clean, and does not have all the imperfections that even a gently used vehicle would exhibit. This may include issues of pride, image, and status, where the buyer may have strong emotional or psychological needs to statisfy through ownership of a particular vehicle with particular features. Reviews - New vehicles have mountains of information available to buyers, who can read about safety and reliability ratings, learn about problems from the trade press, and even price shop and compare between brands and models. Contrasted with the minimal information available to used vehicle shoppers. Unbalanced Knowledge - The seller of a used car has much greater knowledge of the vehicle, and thus much greater power in the negotiation process. Buying a used car is going to cost you more money than the value of the car, unless the seller has poor knowledge of the market. And since many used cars are sold by dealers (who have often taken advantage of the less knowledgeable sellers in their transaction), you are unlikely to purchase the vehicle at a good price. Fear/Risk - Many people want transportation, and buying a used car comes with risk. And that risk includes both the direct cost of repairs, and the inconvenience of both the repair and the loss of work that accompanies problems. Knowing that the car has not been abused, that there are no hidden or lurking problems waiting to leave you stranded is valuable. Placing a price on the risk of a used car is hard, especially for those who only want a reliable vehicle to drive. Placing an estimate on the risk cost of a used car is one area where the seller has a distinct advantage. Warranties - New vehicles come with substantial warranties, and this is another aspect of the Fear/Risk point above. A new vehicle does not have unknown risk associated with the purchase, and also comes with peace of mind through a manufacturer warranty. You can purchase a used car warranty, but they are expensive, and often come with (different) problems. Finance Terms - A buyer can purchase a new vehicle with lower financing rate than a used vehicle. And you get nothing of value from the additional finance charges, so the difference between a new and used car also includes higher finance costs. Own versus Rent - You are assuming that people actually want to 'own' their cars. And I would suggest that people want to 'own' their car until it begins to present problems (repair and maintenance issues), and then they want a new vehicle to replace it. But renting or leasing a vehicle is an even more expensive, and less flexible means to obtain transportation. Expense Allocation - A vehicle is an expense. As the owner of a vehicle, you are willing to pay for that expense, to fill your need for transportation. Paying for the product as you use the product makes sense, and financing is one way to align the payment with the consumption of the product, and to pay for the expense of the vehicle as you enjoy the benefit of the vehicle. Capital Allocation - A buyer may need a vehicle (either to commute to work, school, doctor, or for work or business), but either lack the capital or be unwilling to commit the capital to the vehicle purchase. Vehicle financing is one area banks have been willing to lend, so buying a new vehicle may free capital to use to pay down other debts (credit cards, loans). The buyer may not have savings, but be able to obtain financing to solve that need. Remember, people need transportation. And they are willing to pay to fill their need. But they also have varying needs for all of the above factors, and each of those factors may offer value to different individuals. As a thought experiment I suppose we can ask where dividends came from and what would be different if they never existed. The VOC or Dutch East India Companywas the first to IPO, sell shares and also have a dividend.   There had been trade entrepot before the VOC, the bulk cog (type of sea-going ship) trade in the Hanseatic League, but the VOC innovation was to pool capital to build giant spice freighters - more expensive than a merchant partnership could likely finance (and stand to lose at sea) on their own but more efficient than the cogs and focused on a trade good with more value.  The Dutch Republic became rich by this capital formed to pursue high value trade. Without dividends this wouldn't have been an innovation in seventeenth century Europe and enterprises would be only as large as say the contemporary merchant family networks of Venice could finance.  So there could be large partnerships, family businesses and debt financed ventures but no corporations as such. "As others have alluded to but haven't said due to the lack of reputation points to spare, you can take advantage of oil prices by leveraging up and using as much credit and margin as the banks and brokerages (respectively) will lend you. People assume that the correct answer on this forum has to masquerade as conservative financial advice, and this is not advice nor conservative. Futures contracts are readily available, but they are expensive to obtain (like a minimum entry of $4,450). But if this expense is no such object to you then you can then obtain this contract which is actually worth 20x that and experience the price appreciation and depreciation of the whole contract. The concept is similar to a downpayment on a mortgage. You assume ""rock bottom"" oil prices, but fortunately for you, futures contracts will allow you to quickly change your bets from future price appreciation and allow you to speculate on future price depreciation. So although the union workers will be protesting full time after the drilling company lays them off, you will still be getting wealthier. Long Options. These are the best. The difference with options, amongst other speculation products, is that options require the least amount of capital risk for the greatest reward. With futures, or with trading shares of an ETF (especially on margin), you have to put up a lot of capital, and if the market does not go your desired direction, then will lose a lot. And on margin products you can lose more than you put in. Being long options does not come with these dilemmas. A long march 2015 call option on USO ETF can currently be bought for less than $200 of actual cash (ie. the trading quote will be less than $2.00, but this will cost you less than $200), and will be worth $1000 on a very modest rebound in prices. The most you can lose is the $200 for the contract. Compared to $4450 on the futures, or $100,000 (that you don't have) in the futures market if oil really moves against you, or compared to whatever large amount of cash needed to actually buy shares of an ETF needed to make any decent return. These are the most lucrative (and fun and exhilarating and ) ways to take advantage of rock bottom oil prices, as an individual." Here's the original academic backbone that it's based on and expanded upon.  https://en.m.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem  I think thats it's overly conservative in this case (I fully accept academic theories only go so far in the real world) as Damodaran (NYU professor) has made a pretty solid case that cash on balance sheet at large cap tech companies is valued by the markets at less than its after tax $ value. Stock trading (as opposed to IPO) doesn't directly benefit the company. But it affects their ability to raise additional funds; if they're valued higher, they don't need to sell as many shares to raise a given amount of money.  And the stockholders are part owners of the company; their votes in annual corporate meetings and the like can add up to a substantial influence on the company's policies, so the company has an interest in keeping them (reasonably) happy. Dividends (distributing part of the company's profits to the stockholders) are one way of doing so. You're still investing in the company. The fact that you're buying someone else's share just means you're doing so indirectly, and they're dis-investing at the same time. Theoretically, it's a question of rate of return. If a desired or acceptable rate of return for market makers' capital is X, and X is determined by the product of margin & turnover then higher turnover means lower margin for a constant X.  Margin, in the case of trading, is the bid/ask spread, and turnover, in the case of trading, is volume. Empirically, it has been noted in the last markets still offering such wide-varying evidence, equity options: http://faculty.baruch.cuny.edu/lwu/890/mayhew_jf2002.pdf The economic utility of markets results from price discovery (and the corresponding capital allocation.) Information which changes the material value of a business can come to light, be processed by sentient beings capable of rational thought, and conveyed to the market in the form of a price in an hour. That can't happen in a millisecond.  And don't try to argue about liquidity, because HFT liquidity evaporates in milliseconds in adverse conditions (i.e. when liquidity matters.)