One of the most often-asked questions is this: How much money do I need to trade the stock market?
That’s followed closely by the brother of that question: Can I trade the stock market if I don’t have much money?
The truth is that you’ll probably find the road to trading success may have fewer potholes when you have a larger trading account. However, you can still get started on your stock market journey even if you have a smaller account.
If you have a smaller account you’ll have be make wiser choices. There is little room for error and you’ll have to get it right the first time.
You’ll have to learn to read the chart better than other people, since the decisions you make will have impactful results on your trading account. One poorly executed or mismanaged trade will tilt the odds against you.
You’ll have to learn to manage risk. You’ll have to be wise when it comes to buying the appropriate number of contracts and setting stops.
Like I said, it’s possible to learn to trade with a small account. I’ve taught plenty of students who were starting to trade with a limited budget. They can tell you that it is possible to learn to succeed, but you must be patient and willing to sit out some high-risk opportunities that others may be able to use.
Students who are starting out with a small account should understand that just because they don’t have a ton of money with which to trade doesn’t mean they should seek safety in cheap, slow-moving stocks.
That could be exactly the wrong decision. Although these stocks may not be as costly, they could be offering you a false sense of security. They may not have the potential to move enough to overcome time decay. Your idea of safety could be the thing that kills your chances.
That means you can consider highly traded stocks like Apple, Amazon, Bidu, Facebook, First Solar, Green Mountin Coffee Roasters, Google, Tesla, Netflix, Priceline and othes.
If you have a small account, you have the potential to benefit when you have the following powerful combinations:
- Volatile stocks that move a lot
- Stocks that move a lot with good patterns
- Correct strategy selection that exploits price movement
- Aggressive risk management
- Definite risk strategies
What you need to do is learn to trade expensive stocks (see the examples above) on the cheap. You must find a way to use leverage to your advantage. Fortunately, there are ways to possibly trade expensive volatile stocks for pennies on the dollar. And you can do it every day.
I teach several different types of trades that may work perfectly if you have a small trading account.
Expiration Strangle: This entails buying an OTM call and put. Because of depressed time value, the strangle can be a very inexpensive trade on expiration day. This trade is typically done very early in the day when direction is unclear but significant movement is likely.
The Value Menu Trade: This is a speculative, risk-managed directional option trading system that exploits low cost options to create tremendous leverage with significant potential rates of return.
The Cheap Delta Trade: On expiration Friday, it is possible to buy “Cheap Delta,” which occurs when most of the time value has been removed from in-the-money options. This allows the trader to purchase an option that is one or two strike prices ITM and is almost all intrinsic value. These options may trade with a very high functional delta. Position size and stops still indicate loss within risk management if stopped out. These options are typically quite inexpensive.
Directional Butterfly: By doing a credit spread and debit spread at the same time on the same stock, you can create a butterfly. The expirations are the same. The option type is the same. It creates a limited risk and limited reward situation.
I teach more about these trades in The New Ultimate Options Trader Video series which will be available for download soon. I also teach these strategies on a regular basis in my daily Online Options Room, “The Morning Lab”.
Check out these opportunities to learn more about trading with a smaller account.