When I first entered the trading world, one of the first questions I and many new would be traders ask is “how much money is needed to begin trading?” Sure, you can simply go to a broker and ask them what their minimum required deposit is and plunk that amount down. That’s exactly what I did at first. However, later on I discovered that in order to begin growing an account, we often need far more than the minimum due. With small accounts of say $5,000 things like transaction fees and slippage can easily eat into profits especially if you have an active trading style. Not to mention that attempting to grow a $5,000 even at a solid average annual rate of return of 20% would take approximately 18 years to grow to $100k.
There are, however, several excellent reasons why you may want to start with a much smaller account. For example, until you are consistently profitable, why would you want to risk more than the bare minimum?
I wish I knew then what I know now and that I had access to some experts that may be able to help get me started on the right foot and with the right expectations. Well, we assembled a panel of expert traders to help answer these basic questions “how much money is needed to begin trading” and “what portion of one’s savings should this be.”
Our Panel of Experts include:
, Angela Zhou
, Christopher Ebert
, Darrin Donnelly
, Doug Gregory
, Evan Medeiros
, Gennady Kupershteyn
, Ivan Hoff
, Jason Thompson
, John Mackel
, Marco Di Dionisio
, Mark Minervini
, Michael Zoitas
, Patrick Harris
, Rolf Schlotmann
, Shan Shan Xie
, Steve Burns
, Sunrise Trader
, and Venky Srinivasan
What do you think is the right amount to start trading or investing with and why?
Everyone should answer this question based on their individual circumstance. Until you master your craft, I always recommend individuals to trade very, very, very light. This business is not easy and most investors (professional and individual) either loss money or can’t beat the market. So why commit a lot of capital until you have proven to yourself that you can successfully navigate both bull and bear markets?
As little as $5,000, you can start investing since you can buy one or two stocks of companies which you’re familiar with and relate to your life, and keep watching their earnings and stock charts. For trading, I’d suggest that one starts with more fund like $20,000. Learning about basics of the stock chart and technicals is necessary, and it’s good to take advantage of fluctuation of the stock price and its trend when trading.
In my mind, there are no minimum amounts required to start investing. It takes a long time to learn how to invest correctly, so even starting with a few hundred dollars is better then not learning at all. Only day traders have to worry about having more then $25,000 to start because of the Pattern Day Trader rule.
Start with a small amount, 4-5k. Chances are you are probably going to blow it off, 1-3 times before you actually learn how to make money from trading consistently.
First and foremost, beginners should start with paper trading until he/she can form a trading process before using real money. The amount that someone needs to have in order to trade or to invest will vary depending on the person’s financial stability. A $25k account will be sufficient for someone to get started in trading but the amount could increase drastically if someone is looking to invest with a longer time horizon.
As an investor, I started with zero and grew it to multiple six figures, but it took time. The first step was saving and building up capital from smart, personal financial decisions.
$10,000 for small traders is ideal to start with and for bigger intermediate anywhere from $100,000 – $250,000 is best. If you go to a prop shop, then $5,000 also will suffice.
What portion of savings should this be? Why do you feel this is important and how did you arrive at this number?
It varies according to your age, risk tolerance and financial foundation. Take no more than 50% of your saving, so this amount would not affect your lifestyle and health. I think working full time or even several jobs will help one arrive at this number.
As far as a % of your savings don’t really have a percentage of Savings to advise people to start with the biggest thing to decide is what can you afford to lose if it was completely gone. Will it be the end of world or would it affect the way you live your life every day. This only you can answer. Once you decide all of that you have created your first Plan and you’re ahead of everyone else right there.