The #1 question I get asked and also for most, the biggest barrier to the world of trading stocks, how much money do you need to start with? I think its the biggest misconception about trading because most people think that you need a lot of money to make money. I was one of those people. When I started reading books about trading I always thought the same thing and ended up getting discouraged. Flash forward 5 years and now I’m kicking myself for not starting sooner.
So how much do you actually need to open an account and start trading? The answer may surprise you but the minimum amount to start trading without limitations is $500. Is it really possible though to make money with only $500? That depends on many factors but most important is what kind of trader you want to be. There are many different styles of trading and the amount of money you have can effect what kind of trading you can do. Also most brokers offer margin. So depending on what amount you start with your broker may offer you more money to trade with. It can get complicating and to be honest, trading with margin can add more risk and stress.
Brokers who offer you margin will typically give you two different buying powers, one for intraday and one for overnight holds. So if you’re starting with only $500, the broker in this example Suretrader, will give you 6:1 day trading buying power ($3,000). Anything held overnight (Swing trade) they give you 2:1 buying power ($1,000).
You may have also heard of the pattern day trade rule (PDT). The reason why you’re able to day trade with only $500 at Suretrader is because its an off-shore broker. All brokers within the U.S. require a minimum of 25k to day trade stocks with. If you have less than that, you will be restricted from selling stocks the same day you buy them(in its simplest terms, its a little more complicated than that). Avoiding the PDT rule gives you a huge advantage because there are many times that you buy a stock and it rips the day you buy it. If you’re under the PDT restriction then you won’t be able to sell it that day and hope that it holds its gains the following day. That’s where I like Suretrader for those under 25k. From there you can start with any amount under 25k and start trading with no restrictions. Once you get over 25k, you can transfer back to a U.S. broker if you want.
Those are the minimums and restrictions that you need to consider when starting to trade. The next part is probably the hardest and that’s becoming a consistent and profitable trader. If you’re new to trading your next step should be learning how to read candlestick charts. Steve Nison created the candlestick and he also will teach you how to use them. All his lessons can be found here.
What you do from here will depend on how much money you start with. Many traders subscribe to stock newsletters. There are many to choose from and they all offer something different (See my post: Truth About Stock Newsletters). Other traders learn one strategy and stick to it. Remember you will never be right 100% of the time, but winning more than losing is the only way to stay in the game.