How much money do I need to start trading?

By Ayton MacEachern AAA
A:

The step toward becoming an active trader is a big one, because the world of active trading is quite different from that of casual investing. It is important to understand the implications of making the switch, including increased commissions, which could be wipe out your gains before you really begin.

Commissions
Commissions most likely are the largest cost you will be take on as an active trader. Other expenses, such as software, Internet, and training costs, could be high, too, but often they are dwarfed by the cost of commissions. A trader sometimes will make over 100 transactions per month and commissions can vary widely depending on the broker you are working with. It is important not only to shop around for the best software, execution speeds, and customer service, but also to look around for commission costs that are most favorable to you.

Things to Look For
Although there is no hard and fast rule for how much you should have in your account to start trading, many brokerages will set this amount for you. For example, a brokerage may say that you need a minimum of $3,000 to open a margin account, the type of account you would need to make short sale trades or to purchase or sell options.

For a good start, be sure to look out for account minimums at the brokerages you investigate This number usually is set for a reason because it is in the brokerage's best interest to keep you trading for as long as possible to ensure that they continue to collect commissions. These minimums often are put into place to reduce the risk of you burning up your entire account in just a few trades, or even worse, getting a margin call. In the case of the latter, you would have to deposit more funds into your account in order to keep your current position open.

To learn more about commissions, be sure to read Defining Active Trading and Evaluating Your Broker.

This question was answered by Ayton MacEachern

RELATED FAQS

  1. What's the difference between binary options and day trading?

    Binary options and day trading are both ways to make (or lose) money in the financial markets, but they are different animals. ...
  2. If a LEAP option is purchased and held for more than 12 months, is the tax treatment ...

    A LEAP (long-term equity anticipation security) is a call or put option that allows the buyer a long-term expiration on the ...
  3. Where can I purchase options?

    In the United States, all options contracts go through one of several options exchanges. An investor must have an account ...
  4. How can I invest in a foreign exchange market?

    The foreign exchange market, also called the currency market or forex (FX), is the world's largest financial market, accounting ...
RELATED TERMS
  1. Robo-advisor (robo-adviser)

    Definition of Robo Financial Advisers
  2. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  3. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
  4. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  5. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  6. Short Put

    A type of strategy regarding a put option, which is a contract ...
comments powered by Disqus
Related Articles
  1. 3 Money Moves To Make Before A Career ...
    Credit & Loans

    3 Money Moves To Make Before A Career ...

  2. Top Financial Frights: Emergencies & ...
    Investing Basics

    Top Financial Frights: Emergencies & ...

  3. The Top Technical Indicators For Commodities ...
    Technical Indicators

    The Top Technical Indicators For Commodities ...

  4. Educating Your Clients About Cybersecurity
    Investing News

    Educating Your Clients About Cybersecurity

  5. All About Liquid Commodities
    Options & Futures

    All About Liquid Commodities

Trading Center