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SUMMARY:
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So how much money do you need to trade or invest.
Every new trader or investor starts with a different account balance. Some brokers require a minimum to even open a brokerage account.
Let me start with saying that this will depend on two main factors before we even get into anything else.
Firstly, are you investing long term or does your personality prefer active trading?
And secondly, how much does your broker charge per order? The lower the better.
When investing for the long term, a much smaller account size is not an issue. I practically started with $1000 when I first began to work full time. I treated it like a savings plan, and just automatically diverted the amount to buy either a particular stock or ETF (Exchange Traded Fund) every pay day.
In fact, by doing this, it also helped me create a disciplined habit to save consistently and reduced my ability to just spend all my pay on going out, buying things I didn’t need.
So for investing, you can literally start with $1000.
For trading, I will be blunt, the more you have, the better you will be. This is where most newbie or wannabe traders go wrong. They are under capitalised and to counter this lack of capital, they leverage themselves up.
Leverage is a double edge sword. It can make you or break you and from my experience, seeing so many traders over the years, it usually breaks them simply because they have not had enough practical market experience to know what can really go wrong with a trade, especially trading with leverage.
Learning to trade takes time and leverage only heightens the risk. A metaphor I like to use is that you fly an airplane high in the sky when you trade without leverage, but once leverage is taken on-board with a low balance account, your plane is now flying just above the tree line without much room to maneuver if something does go wrong.
So until you are certain you can trade profitably without leverage, it is best to not even think about leverage unless you want to blow up your account within months or weeks.
Are you here to learn how to trade or are you here to gamble?
Any money, no matter how small, is precious capital you cannot afford to just ‘play‘ around with and lose without learning anything from losses no matter how small.
Therefore, for trading, I would never encourage any one to trade with less than $25,000. You are better off investing slowly through consistent saving until you get to this account size.
I understand how hard it can be to save up a practical $25,000 account. I’ve been there so I know. But I also don’t want to give the newbie false hopes about trading easily and profitably with small accounts.
I want to give every newcomer a sense of reality and if it means delaying someone’s hope of trading immediately, so be it.
I would rather this than seeing good hard earned income thrown down the drain simply because they were incorrectly sold into a false dream.
So start off investing even with $1000 if you have to, and start saving from there. Then only trade when you have an account size of about $25,000 and above.
I hope this lesson finally answers this very common question for you.
Get Terry’s 10 step stock checklist and video lessons for free: http://www.thefreedomtrader.com
