In addition to your goals for trading, you also should be well aware of the resources you bring to the trading table. They will play a big part in the markets you can trade and in the way you trade them. If you think you can be a big-time bond trader with a $5,000 account or a day-trader while working a full-time job, you’ll soon get a dose of reality when it comes to trading.
Here are some resources you have to consider as you ponder what and how to trade:
Money
There’s that word again, but the fact of the matter is that you can’t trade without sufficient capital – your trading stake that you need to guard carefully. You may be able to begin trading without having enough time or knowledge, but you won’t be able to begin trading without money. You have to have money to make money.
Your trading account will have to meet minimum requirements set forth by the trading industry. How much money you need depends on what you intend to trade. If you are buying stocks, you have to have at least half of the purchase amount in your account. If you are trading futures, you usually have to have a minimum of about 3 percent to 7 percent of the value of the contract in your account.
Those are the regulatory requirements, and there is no negotiating the amount. If you plan to trade the full-size S&P 500 Index futures contract, for example, you have to have about $20,000 in your account for each contract. If you are trading the e-mini version of the S&P 500, the requirement is about $4,000. The key point is that the amount of money required to trade limits what you can trade and the number of contracts you can hold.
In addition to the minimum regulatory requirements, you should also have a cushion above that to withstand the fluctuations of the marketplace. That suggests you should always have enough extra cash in your account to cover possible worst-case scenarios. At any one time, you may not want to have more than 50 percent of your account tied up in active positions.
If you are not adequately capitalized and the market makes even a slight adverse price move, you may either be forced to put up more money to hold your position or you may be forced out of the market. Having extra money in the account also relieves the pressure of having to be right about your position from the start, pressure that is not conducive to making wise trading decisions.
You also do not want to have the pressure of having the funds for trading come from money you need to pay the rent or buy groceries or from funding the account with your credit card. Your trading money should come from discretionary funds that you can afford to lose without affecting your lifestyle.
Time
Everyone has 60 minutes in an hour and 24 hours a day, but how much of your time can you devote to market analysis and trading? If you have a full-time job, it will be difficult to be a day-trader, no matter how well you think you might do with that style of trading.
The priority you place on the use of your time will play a big role in selecting the type of trading resources you need and the style of trading you can do. Time may be an important trading constraint for you.
Trading Help
To perform the market analysis you need to make a trading decision, you will need information and educational resources. Typically, that includes expenditures for the following:
Electronic connection. Today’s active trader almost needs to have a connection to the internet, both to have access to information resources quickly and easily and to enter orders.
Data/price quotes. Today’s active traders also need real-time quotes as well as access to historical market data for their analysis. Brokers may provide sufficient data, but many traders want to subscribe to a source that will provide the most accurate, reliable data possible.
Analytical software. Another requirement for many active traders is software that can turn data into charts and technical indicators deemed necessary to analyze markets. All you need to do is specify the type of software you want, and some vendor is likely to have it.
Advisory services. In general, it’s probably advisable to do your own research, but your lack of time or knowledge may limit what you can do, causing you to turn to other more expert sources for information, analysis and perhaps trading recommendations.
Basic Trading Tutorial
Here are some resources you have to consider as you ponder what and how to trade:
Money
There’s that word again, but the fact of the matter is that you can’t trade without sufficient capital – your trading stake that you need to guard carefully. You may be able to begin trading without having enough time or knowledge, but you won’t be able to begin trading without money. You have to have money to make money.
Your trading account will have to meet minimum requirements set forth by the trading industry. How much money you need depends on what you intend to trade. If you are buying stocks, you have to have at least half of the purchase amount in your account. If you are trading futures, you usually have to have a minimum of about 3 percent to 7 percent of the value of the contract in your account.
Those are the regulatory requirements, and there is no negotiating the amount. If you plan to trade the full-size S&P 500 Index futures contract, for example, you have to have about $20,000 in your account for each contract. If you are trading the e-mini version of the S&P 500, the requirement is about $4,000. The key point is that the amount of money required to trade limits what you can trade and the number of contracts you can hold.
In addition to the minimum regulatory requirements, you should also have a cushion above that to withstand the fluctuations of the marketplace. That suggests you should always have enough extra cash in your account to cover possible worst-case scenarios. At any one time, you may not want to have more than 50 percent of your account tied up in active positions.
If you are not adequately capitalized and the market makes even a slight adverse price move, you may either be forced to put up more money to hold your position or you may be forced out of the market. Having extra money in the account also relieves the pressure of having to be right about your position from the start, pressure that is not conducive to making wise trading decisions.
You also do not want to have the pressure of having the funds for trading come from money you need to pay the rent or buy groceries or from funding the account with your credit card. Your trading money should come from discretionary funds that you can afford to lose without affecting your lifestyle.
Time
Everyone has 60 minutes in an hour and 24 hours a day, but how much of your time can you devote to market analysis and trading? If you have a full-time job, it will be difficult to be a day-trader, no matter how well you think you might do with that style of trading.
The priority you place on the use of your time will play a big role in selecting the type of trading resources you need and the style of trading you can do. Time may be an important trading constraint for you.
Trading Help
To perform the market analysis you need to make a trading decision, you will need information and educational resources. Typically, that includes expenditures for the following:
Electronic connection. Today’s active trader almost needs to have a connection to the internet, both to have access to information resources quickly and easily and to enter orders.
Data/price quotes. Today’s active traders also need real-time quotes as well as access to historical market data for their analysis. Brokers may provide sufficient data, but many traders want to subscribe to a source that will provide the most accurate, reliable data possible.
Analytical software. Another requirement for many active traders is software that can turn data into charts and technical indicators deemed necessary to analyze markets. All you need to do is specify the type of software you want, and some vendor is likely to have it.
Advisory services. In general, it’s probably advisable to do your own research, but your lack of time or knowledge may limit what you can do, causing you to turn to other more expert sources for information, analysis and perhaps trading recommendations.
Basic Trading Tutorial
- You Need To Know What You Don't Know
- Why You Trade Forex?
- What Your Resources?
- Trading Mentality
- The Language of Trading
