I know that no one wants to do what the title suggests, however new traders do exactly that everyday. So if you, as a new trader, wants to blow your account, go ahead and just do what I speak about in this article. If you don’t want to blow your account then make sure that you have enough capital invested when you start trading.
When deciding to open a new brokerage account it is important that you have enough money to trade with and not be under capitalized. I recently opened a small micro account to test a new broker that I was considering for future use. In the test I put a small $50 deposit in the account to trade with while learning how the broker performed.
I then began to trade the same trades with the same system I trade in my other more capitalized account. When I used my current broker I would switch to this new broker and place the same trade. During this time I learned a good deal about the trading platform and I was reminded of a great lesson in being under capitalized.
The result of my test was disastrous!
I started quite well with a string of winning trades and I brought my balance up to $83.00 right away. However the trades began to go against me and I had some losers that quickly erase all of the profits I had earned previously. I attempted to use the best money management I could but with such limited funds in the account there was no way to keep the trades limited to just 2%.
So to make a long story short in 30 days my new broker account received a margin call and was wiped out.
The REASON: Not enough capital to keep me going.
So what is the biggest mistake new traders make? Among many others this is a big one called under capitalization. When traders open account without enough funds the result is a margin call waiting to happen.
Why do traders do this?
- They are not aware of how much money is needed for their particular strategy.
- They might not have enough money but are too impatient to wait until they have enough funds.
How Much Money to Start?
It depends on the trading strategy and money management style that each trader is using. As a general guidline I would recommend $1,000.00 for a micro account, $10,000.00 for a mini account and $100,000.00 for a standard trading account.
Do you have any similiar experiences or other practical advice please share here so we can all benefit from your experiences.
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