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What Are Your Resources?
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.
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Knowing What
You Don’t Know
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Why Do You
Want to Trade?
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What Are Your
Resources?
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Developing a
Trading Mentality
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The Language
of Trading
Main Trading
Resources Section |
