Account Balance Amounts
There are a few different levels of account balances when it comes to trading. It can be helpful to have three separate accounts: one for an IRA, one for trading/day trading, and another for swing positions. How you manage your accounts is up to you, but there are a few guidelines.
These guidelines may change based on the price of the stock you are trading. Accounts will be different between a $500 stock compared to a $20 stock. At $500,000+ you will buy more shares of a company trading at $1 per share and you might be able to move that stock heavily. If you purchase the same $1 stock with the $0 to $1,000 account, you will not move the stock.
$0 to $1,000
- You may only have one account when you have a smaller amount of money available for trading.
- You may have trouble finding brokers.
- There is a law that states accounts less than $25,000 can’t day trade and can’t trade more than three trades every five days.
$5,000 to $20,000
- This amount is what most people start with.
- $5,000 is close to the minimal requirement for most brokers.
- You will not be able to buy a lot of expensive stocks. You need to give them more room to play.
$25,000 to $150,000
- If you buy a lot of one stock you could be down a considerable mount of money in one to two days.
- You need to know how to manage your risks and trades, and you need to build up your experience before trading.
- At this point you will start to move stocks slightly, especially if you are putting in $300,000 to $400,000 to one stock.
Once your account gets to $3 million to $5 million you may want to buy $300,000 of one stock. If you have 4 or 5 stocks it won’t dampen your account value too much. That is when you start moving the market. You want to be careful and watch how you trade. You want to really know what you are doing when you get to this level. You may want to be gradual rather than buying everything at once. For example, you may want to wait for a basing pattern and buy in increments.
The important thing to understand about higher account values is that you start to move the market. With lower account values you need to manage your risk more. You will also pay more on commissions with lower account values.
Make sure that when you are first start to trade that you trade three to five shares as a test run. It gives you the emotional experience behind trading. You will probably lose out on most of them because of commissions but it will be more educational than paper trading.