What is going on everyone, I hope you all are making some solid gains in your trading. This subject is something that I know has ran through many new traders minds, as they decide to begin their day trading journey. This is also one of the hardest questions to answer because the reality is, that every one of us has a completely different situation going on. How do you make your income outside of trading? Is it enough to give you the opportunity to add too the account as you are going through the learning cycle? because trust me, if you haven’t made real trades, you’ll need the backup.
So, those of you that have been around a little bit know that I use the offshore brokerage Capital Markets Elite Group. This broker is awesome and does not fall underneath the Pattern Day trading Rule. Their account minimum is only $500 dollars, and they also offer 4 to 1 leverage. That means that $500 dollars gives you $2000 in buying power. That is fantastic, but could a beginner trader take that and roll with it, yes, but it is not likely!
When we decide that we are going to become traders, it is important to note that trading is not an easy thing. There aren’t many that have gotten rich quick by means of Day Trading their way into millions. It is a slow and painful process, that requires discipline and resiliency! So, back to the original question, How Much Money Should You Use To Fund You Trading Account?
Each brokerage has an account minimum that you need in order to trade in a leveraged or margin account. Margin accounts give traders access to their funds immediately after a trade is complete, as opposed to waiting for the funds to resettle. This is a huge advantage to the cash account, so it would be smart to make sure you have the margin account minimum if you are going to be an aggressive trader.
If I were going to start all over in my trading, I would really consider waiting until I had more than $5000 dollars to start with. Woah, hey, I know that’s quite a lot to the average person out here just trying to get by, but honestly, to be a trader you will need enough to get past the learning curve, start trading break even, and then eventually become confident and disciplined enough to take profit and build that account back. It’s like riding a bike (which I know I have heard other people say when talking about trading) you will be very unbalanced, you will fall, but once you start to balance you will ride a little bit farther than the last run, then farther, then you will not have any trouble at all. This is exactly how trading will be.
So with $5000 dollars in CMEG (Capital Markets Elite Group) you will have 6 times the buying power turning that 5K into 30K. With this broker, once you have over $2500 in your account they boost your leverage to 6 to 1. You will be able to trade at 20% of your buying power which is $6000 dollars, and you would have to loose over 90% of your cash to fall below the required trading minimum of $500 dollars. That is a really solid buffer. If you only started with the minimum of $500 dollars or close to that, it would only take a couple of bad trades to take your account underneath the minimum, and then you are looking at the fees also. On top of that it will cost you money to wire more money into your account. So think about the costs that are more peripheral to actual trading because they are in most cases unnecessary losses.
As you can probably already tell, this is not an easy question to answer but in reality you need to decide exactly how much you want to put into your account initially. If you are serious about becoming a trader then be very serious about your plan and how much you think you should start with. $5000 was just a number I chose to give you a comparison to just using the account minimum! Even with that comparison though you can see there is a huge difference in how long you will be able to stay in the game, and that is important!!!
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