In today’s program, you will learn how much money is needed to start stock trading.
So listen now…
Hey, hey, what’s wrong, my friend? In today’s program, I want to talk about how much money is needed to start stock trading.
I know some of you might be thinking, “This is a stupid question Rayner, you can start with $50 or even $100! Look at those zero commission brokers these days!”
I see, you can start with 50 dollars or 100 dollars, it is possible. However, when you have such a small stock trading account, you will face some problems.
1. It is almost impossible to apply proper risk management
For example, suppose you have a $100 trading account and you want to take 2% of the risk in each transaction. This means that when you trade, the loss per trade will not exceed $2, which is almost impossible. It is very difficult to stop a loss of only 2 dollars.
2. You may blow up your account
If you do not have proper risk management, it is only a matter of time before that small trading account is blown up. If you think about it, if you blow up 10 or 20 small trading accounts, they will eventually become a lot of money, such as $1,000 or $2,000.
3. The stocks you can trade are limited
If you do not deal with leverage or margin, you may only be able to trade low-priced stocks. These are the stocks that can accommodate the size of your account. But these types of stocks fluctuate greatly.
This is why I recommend not to start with a small stock trading account of $100 or $200. Now you may be wondering how much you should start.
Start stock trading from at least USD 5,000
In my personal opinion, I think you should start with a stock trading account of at least $5,000. Some of you may not have that kind of money, but we will talk about it later. I said that there are several reasons for starting at $5,000.
Benefit #1.You can carry out proper risk management
With a $5,000 account, the risk of each transaction is 2%, and you may lose up to $100. With a stop loss of $100, you can do several things. You can buy a stock worth $100 and let it go to zero, which means a loss of $100.
You may be able to trade two shares, each worth $50. If they return to zero, you will lose $100, which is within the scope of 2% risk management. Again, here we are just talking about the stocks going to zero. (You don’t want to watch it become zero.)
What I want to show is that with the expansion of the account size and the expansion of the nominal stop loss value, you have more room to play, more stocks to choose from, and overall there are more choices.
Benefit #2.You can avoid account explosion
Because now you have proper risk management. If you follow the risk management guidelines, you are unlikely to blow up your account.
Finally, the last benefit…
Benefit #3.You can trade more stocks there
I won’t say that you can trade all stocks, because some stocks with more volatility and higher prices, such as Tesla or Amazon, can easily fluctuate by more than $100. Even with a $5,000 account, you might avoid these stocks.
However, compared to having a small account of 100 USD or 200 USD, you can now trade other stocks priced at 40 USD and 50 USD. This is a bit like another advantage of having a decent stock trading account.
At this point, some of you are thinking, “Reina, I don’t have $5,000, what’s the solution?”
Give you two choices. First, suppose you don’t have $5,000. Maybe you only have 500 dollars. My suggestion is to conduct paper transactions in the live market. You do not have any risks.
At the same time, when conducting simulated trading, you can familiarize yourself with your own trading strategies, understand their performance in the real-time market, and become familiar with your platform. Then over time, save the money from $500 to $5,000.
I hope that during paper trading, you will be confident in your trading strategy and be able to trade in the real-time market for $5,000 and using appropriate risk management.
It doesn’t make sense to trade a reasonable trading strategy, but you only have $200 in your account because you cannot apply proper risk management. Makes sense? If you don’t go this way, then another option I offer you is to trade in other markets, such as foreign exchange.
Forex trading allows you to use a $500 account for nano-hand transactions, where you can still apply appropriate risk management, which may be a topic for another day. This is another solution I give you.
As a quick review, let’s talk about what we discussed.
- You can start stock trading with $100 and $200, but you may blow up your account
- Start with at least $5,000, so you can trade most stocks, apply proper risk management and prevent blowing up your trading account
Having said that, I wish you good luck and a good deal. I will talk to you soon.