At some point, you may feel ready to start trading with real money. For many, this is part of the plan. But how should you start?
If you are beginning with under $25,000, then the same principles apply as for a larger account. However, there are some differences for a smaller account.
- Ask your broker for some free trades. Commissions will eat up your profit otherwise. Currently Schwab is offering 500 free trades for a new account sign-up. If you prefer TDAmeritrade or other brokerage, ask them to match!
- Start with very only low-risk trades and trades with high probability of success. These would include Wide-Wing Iron Condors and credit spreads.
- One trade at a time. Add a new trade when the first is successful. Manage each position until it closes with good profit before adding others. You want to build success on success.
- Use only 1 or 2 contracts for each position, risking only a little on each trade.
- Keep in mind the "day trade" rule. Accounts under $25,000 cannot trade more than 3 turn-arounds (buy & sell) in five days. See your brokerage agreement.
- Consider using commission-free ETFs for some trades. Ask your broker for a list or add it to your Scan.
- Keep an accurate track of your commissions. Some multi-legged spreads such as Butterflies can eat up more commission than the actual cost of the trade.
- Keep in mind that real money trading and paper trading are not always the same. PaperMoney trades are based on price alone (splitting the bid/ask) but in a live account, you have both price (not necessarily mid-point) and availability (there may be nobody on the other side of the trade) to consider. Orders for 10 contracts may be only partly filled. You need to decide whether to keep the order or cancel the remainder, or call your broker for a manual fill.
- Keep trading your PaperMoney account every day. You should spend more time practicing than trading, no matter how small your starting account.
- Use the HOT Chat on Facebook to get feedback and ideas on your trade. Go to https://www.facebook.com/honoluluoptionstraders/ and LIKE the site, then make a request in the Comments. An Admin will add you. Then look for the "HOT Options" in your groups are introduce yourself to everyone. You are in!
- Finally, the CBOE and OIC have occasional webinars on this topic.
Welcome to thousands of small traders around the world!