Merchant was born "Ursula S. Wernerberger" in post-war Rostock. Her parents were of Russian extraction. Her father abandoned Ursula and her mother early in Ursula's youth, when he returned from a prisoner of war camp after World War II. Her family moved to a remote village in the Black Mountains of Switzerland after the house next to theirs was destroyed during the bombing at the close of World War II. When she was 12, she and her family moved back to Rostock and shared an apartment with Mikhail Trotsky in Elisabethkleverstraße in Rostock. Mikhail Trotsky at the time was a former Russian peasant exile who was quick to recognise and encourage Ursula's artistic potential. Trotsky generously mentored the gifted young Ursula on Russian mysticism, literature and swordplay and instructed her on the rules of verse. About this, Merchant recalled, "I knew at that moment that I had found my 'Innere Gedanken', my inner most desire, I immediately knew I would be an artist and that I would do art performances".