First two weeks of live action. 500$ starting capital. Some quick notes, short and sweet.
1) With such a small account I NEED to have a large position in relation to my account. It became very clear after my first few trades (100-300$ positions) that I needed to increase my size. With such a small account, the only real way to grow your account is to be aggressive. Commissions will destroy your small positions. It's simple and here's what helped it click for me. Commissions on e trade are ~7$ on the buy PLUS ~7$ on the sell (actually 6.95, not 7$ even but will call it 7 for examples sake). So about 14$ to buy and sell any stock. That means!
On a 100$ position, you need to clear a 14% gain JUST TO BREAK EVEN!
200$ position, you need to clear 7% gain JUST TO BREAK EVEN
300$ position you need to clear 4.65% gain JUST TO BREAK EVEN
A 10-15% gain is a great trade. With a small position 10-15% will barely allow you to break even.
2) Know the difference between SETTLED FUNDS, and UNSETTLED FUNDS! I probably jumped into live action too early, as shown by my lack of knowledge of "T+3". So I learned the hard way. Essentially, if you've never traded before, the rules go like this.
If I have a 500$ account and I buy 500$ of stock and sell that stock on Monday for 510$ (a 10$ profit) I will immediately have that 510$ available in my account after I sell (unsettled). I can use that "unsettled" cash to BUY more stock, BUT I cannot then sell that stock UNTIL the cash has "settled". That's where "T+3" comes in. It takes 3 BUSINESS days for funds to settle after the sale of a stock. The day of the trade, PLUS 3 days. Thus "T+3". I made the ignorant mistake of selling stocks I bought with unsettled funds, which resulted in a 90 day suspension on my account for a "good grace violation". The consequence of this suspension is that I can no longer purchase stocks with "unsettled funds" for the next 90 days. This does not effect me very much as I don't plan to hold stocks for more than a day at this point. For example, if I bought stock with the 510$ of unsettled funds I mentioned earlier, on Monday I wouldn't be able to sell that stock until the funds settled on Thursday, So I would have to be holding the stock for 3 days, which I don't plan to do very often right now. So although it doesn't effect me much now, I do not want to be breaking rules with my broker, and neither should you.
I ALSO WANT TO ADD, that just this week, the industry has actually changed the T+3 rule to T+2! Moving forward you will only need to wait 2 days for funds to settle. This is a huge change and is awesome for me and most day traders with smaller accounts.
3) E-trade is a great broker to start with, I have nothing but good things to say about them. I cannot wait for my commissions to drop from 6.95$ to 4.95$. This change occurs if you make 30 trades in a quarter (3 months). This will be awesome for my small account as commissions are my worst enemy by eating into my profits and rubbing salt in my losses.
4) Think or swim is a great research platform for beginners. I haven't traded on think or swim, but I deposited 50$ just to open a TD ameritrade account and get access to the "think or swim trading platform". It has much more and different capabilities than the standard etrade platform ("OptionsHouse")
5) I owe all of my knowledge (while minimal) to these great sources and suggest all newbies check them out:
Tim Sykes
Roland Wolf
Tim Gritanni
Warrior Trading (Youtube channel)
Connor Pollifrone (youtube channel)
Sky View Trading (youtube channel)
William Karaman Penny Stock Trader (youtube channel)
Thanks to anyone checking this out, and to those mentioned above! Look out for more trades and posts in the future!
-Pete
Hey, thanks so much for the comment man! Ya, think or swim is great for research, and has a lot more information out there as far as how to videos and YouTube videos. Cheers!
I recently talked to a TD Ameritrade rep and they said they can match E*TRADEs $4.95 commission. Getting more details on if you have to meet any criteria but thought I'd share since you mentioned making a TD account. Once I get all info I will make a blog post :)
Hey Kody, thanks for checking out my post and for the comment! That would be awesome if you can let me know what you find out. Following you in anticipation of that post, thanks again!
Thanks for the info....
Join now or log in to leave a comment