How much money do I need to start trading stocks? What about options?
The amount of money you initially need for investing depends on several factors.
Some brokers require a minimum dollar amount, generally about $250, to open an account. And if you wish to trade the option spreads that we recommend in a few of our services, you will need a margin account. Due to Federal requirements, all margin accounts require a $2,000 minimum balance.
Most of the Investing Daily services simply recommend the purchase of stocks. And, because you may buy as little as one share of stock, it’s possible to purchase a small portfolio of stocks with as little as $1,000. Just keep two things in mind:
- Diversification – Holding less than 10 stocks is considered by many to be a risky investment strategy. Investing in 10-30 stocks at a time is more advisable.
- Fees – If you pay, for example, $7 in broker fees to buy each of 10 stocks with a combined value of $1,000, you will have paid $70 divided by $1,000, or 7% in fees. And you’ll have to pay another $70 to sell them all eventually. That’s way too much to pay in fees.
If these two factors make you want to amass more money before buying individual stocks, it’s perfectly fine to just put some of your money in a rainy day cash fund and the rest in the SPY (S&P 500) ETF. Once that grows into a few more thousand, then come back and see us.
Options contracts can usually be bought for just a few hundred dollars each, but you absolutely need to fully understand the risk of loss and any margin requirements associated with them first.
With our most popular options service, Options for Income, you would put $500 at risk with each single-contract trade. Because we typically have about 40 trades open at once, that would necessitate your having $20,000 available to invest. However, because you will want some extra cash available for rolls and to avoid an early margin call in case the market turns south, we recommend $25-30,000 as a better starting point.
But since you will only be adding two new positions to your OFI portfolio each week (roughly 8 each month), it will take you almost five months to build up to 40 open positions. So some new OFI members begin with just $2,000-10,000 in their accounts and add more as needed. Remember that Federal regulations require that you maintain a balance of at least $2,000 in any margin account.