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If you decide to go into
trading of stocks, futures and options business you must remember that you
will need to have cash to start your business and you must accept the
possibility of loosing it all. Also you must be aware of personal liability
for any further losses that you may acquire due to your actions. It's very
unlikely that any bank will help you to finance your trading no matter how
good your business plan is. Therefore, in order to begin trading you will need your own cash.
Most on line stock brokers will allow you to open an account with
as little as $500 depending on the account type. You will need more if you
want to trade futures and options. Personally I believe that you should start
trading well capitalized. The more the better but remember to use only funds
that you can afford to loose. Undercapitalization is one of the main reasons for a failure in
trading as it prevents a trader from
implementation of proper money management plan and forces him to risk a high
percentage of his capital on each trade. It also prevents him from taking
other trading opportunities while most of the funds are locked in trades or margins so
the performance of a system or methodology used in trading may be affected.
Finally, having a small capital may have a negative psychological effect on
a trader through such negative emotions as fear or anxiety which may
influence his trading decisions and prompt him to abandon his trading plan
or rules. All that will make trading to be more like gambling, where the
final outcome depends on luck. On the other hand a well capitalized trader
will be able to use all or most of the opportunities indicated by his system and to
implement a proper money management plan which will allow him to control his
risk and to survive losses as well as to maximize his profits. Being well
capitalized and well in control of his capital will help a trader to be
confident in implementation of his plan and to be successful in a long run.
Your overhead costs will include broker's commissions and exchange fees for
each trade you take. Some brokers may also charge for other services and for
maintenance of the account. Whether you decide to trade on line or through
the phone you will have to take into consideration the costs involved. Depending
on your trading style you may also need to purchase trading software or
system or to subscribe to a service. Since your broker will not pay any
interest on the balance in your account there is a cost of not received
interest. Finally you can treat all your losing trades
as your overhead costs providing that the losses are controlled by your money
management plan.
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