So I get asked this question probably more than any other, and that is: How much money do I need to get started trading?
Well unfortunately there is no hard and fast answer, it’s different for every trader.
There are 3 different “levels” of stock traders:
$0 – Student
This is the beginner trader, here you need to try and hone your skills while saving up some money to open an account and start trading with real money. Even though I am skeptical of the value of paper trading it certainly worth doing if you don’t have any money to open an account with.
While you are paper trading, learn some swing trading strategies, here are some I use; Swing Trading Strategies. I just don’t have the time anymore to find trades of my own research (mostly I use Jason Bond and Microcap Millionaires) I still like to see if I can make some good trades.
Learning to trade didn’t cost me much except for some swing trading books but it did take some time. Think or Swim’s paperMoney is a real trading platform you can download which gives you access to a virtual margin account and $100,000 of “play money”.
Once you’ve downloaded paperMoney do the following:
- Put no more than 1/5 of the portfolio into any swing trade or $20,000 into 5 trades at a time, this prevents blowing up your account if 1 of 5 gets wiped out
- Monitor the trades across 1 – 4 days (swing trading)
- Seek 5 – 20% profit in that time and always take half your shares off between 5 – 10% profit
- Stop loss around 3%
You will learn a ton about trading during that time, without risking any real money and be better prepared to proceed to real money trading.
$2,000 – Sniper
The small account trader is going to have to trade and think different than a trader with a larger account.
A sniper is patient, stalking his prey and waiting for the opportune time to pounce. A sniper has to go all in on every trade until they grow to a larger size. If a sniper gets caught behind enemy lines, it’s usually over for the sniper. Meaning that if you have a stock “blow up” on you, your going to lose a lot of your account. Best to get out of this level ASAP.
The problem is; this level of trader does not have the luxury of spreading it equally amongst 5 picks. Instead, the sniper goes all in, looking for quick returns, while cutting their losses with ridged discipline.
A sniper will often be among the most successful traders because the same discipline needed to grow $2,000 into tens of thousands will also help them quickly turn tens of thousands into hundreds of thousands or more.
The caveat is though, you only have one REALLY bad trade to wipe out a small account which then becomes the cost of tuition on Wall Street.
$10,000 – Trader
With this size of account you are a trader. Now your thinking of not just growing your account but “surviving” as well. The most important part of survival is staying in the game and the best way to stay in the game is NOT going all in.
With $10,000+ you can spread the $10,000 across 5 picks to protect yourself from losing your entire account if one pick goes really bad, something the sniper, above, doesn’t have the luxury of.
With $2,000 in 5 different stocks and a 75% win rate you can quickly see how fast you can build your 10K+ into something really BIG.
Assuming every 4 trades you hit nothing more than 5% wins on 3 and a 3% loss on 1 you’re winning 75% of the time and would have made a return of 84% in your first 20 trades building the balance from $10,000 to $18,405.
Keep hitting 5% winners every 3 trades with a 3% loser on the 4th and after 20 more trades your $10,000 is now $32,858 or a 229%.
So how much money do you need to get started trading stocks?
There’s no right or wrong answer, it simply comes down to what works for you and how much disposable money you have. Remember to only trade with money you can afford to lose. If your borrowing money or using your rent money in your trading account that is the surest way to failure!
I’ve started with a $10,000 account and almost never put more than 1/5 of the portfolio in any trade to avoid catastrophe. So when I had $10,000 I made $2,000 bets looking for 10% profit or $200 on wins, -$60 on losses.
Discipline is always priority. Cutting losses fast and paying yourself 10%, rinse and repeat. At the end of the day it’s just a numbers game and those who embrace that have the best chance of surviving.
Hope this helped you get an idea of what it takes to get started. Remember; when your a beginning trader its best to use the services of a swing trading service. They are going to put you on the road to being a profitable trader. Learn from them before attempting to go it alone.
Here are the two stock picking services I use for almost all of my trades; Microcap Millionaires and Jason Bond Picks
If Penny Stocks are your thing, then you should definitely check out Microcap Millionaires.
You can read all my reviews on stock picking services here:
If you are looking to open a brokerage account or looking for a better one, I wrote some reviews of brokers I have used and currently using.
OptionsHouse Review (Currently Using)
Scottrade Review (Used when I first started)
If you have any questions feel free to contact me.