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 is the minimum amount of money that I can invest in a mutual fund?

    Learn about investing in mutual funds even with a smaller initial investment; there are many funds available to investors ...
  2. How do I judge a mutual fund's performance?

    Evaluate mutual fund performance utilizing resources such as Morningstar; compare the fund with others in its peer group ...
  3. What are some signs that I need debt / credit counseling?

    Stop stressing about debt and bills and avoiding phone calls from debt collectors. Get help from a debt and credit counselor ...
  4. How can I protect my portfolio from market corrections?

    Learn about some of the types of investment strategies designed to protect an investment portfolio from losing value during ...
RELATED TERMS
  1. Discretionary Investment Management

    A form of investment management in which buy and sell decisions ...
  2. Account Minimum

    The minimum balance required to be maintained in an investment ...
  3. Capital Growth

    The increase in value of an asset or investment over time. It ...
  4. Absolute Percentage Growth

    An increase in the value of an asset or account expressed in ...
  5. Robo-advisor (robo-adviser)

    Definition of Robo Financial Advisers
  6. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
Related Articles
  1. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  2. Applying Binary Options To Equity Markets
    Options & Futures

    Applying Binary Options To Equity Markets

  3. How Much Does A Financial Advisor Earn?
    Investing Basics

    How Much Does A Financial Advisor Earn?

  4. Can You Buy Stock Insurace? 3 Strategies ...
    Options & Futures

    Can You Buy Stock Insurace? 3 Strategies ...

  5. Growth Strategies For Financial Advisors
    Professionals

    Growth Strategies For Financial Advisors

Trading Center