What Account Size Do You Need To Trade Options

One of the most common questions that we get from traders every week is what account size should you start with? Of course, the bigger the account the easier it is to control your risk. Most of the issues that hold retail traders back can be tied to not having enough capital in their accounts.

Impact of Insufficient Capital

Not being properly capitalized can lead to trading with scared money which will make it very difficult to trade with any kind of confidence. You will find yourself making trade decisions out of fear of losing money or wanting to close a trade for a small profit so the winning trade doesn’t turn into a losing trade.

Imagine a trader who starts with a trading account of only $1,000. With such a small account, they decide to follow the recommended risk management rule of risking 5% per trade, which amounts to $50.

As they begin trading, the market becomes volatile, and they face a series of losses. Each time they have a loss of $50, they feel the pressure of the dwindling capital. This leads to a mindset of trading with “scared money.”

Impulsive Decisions Kick In

Instead of sticking to a trading plan, they start making impulsive decisions driven by fear. For instance, when they see a trade that could potentially yield a profit, they close it prematurely to secure a small gain, fearing that it might turn into a loss. As a result, they miss out on larger potential profits from trades that could have been successful if they had held on longer.

The fear of losing money leads them to avoid taking calculated risks, which ultimately stunts their growth as a trader. Instead of focusing on consistent strategies and long-term success, they become fixated on short-term outcomes, which can lead to further losses and frustration.

Importance of Proper Risk Rules

Using proper risk rules will allow you to stay more disciplined which will set you up for better long-term success. What do we mean when we say proper risk rules? We recommend that our traders risk between 2-5% of their account per trade. Once you get above the 5% level, that is where most of the issues mentioned above kick in.

Starting Account Size Recommendations

Risking 2-5% of your account per trade might seem like a long shot if you are starting with a small account. However, it will allow you to grow your account slowly without needing to be worried about a large drawdown or worse yet blowing out an account. 

We recommend starting with a minimum of $3500 in your account. While you can start with less than this, it becomes more difficult to use the 2-5% rule that we just mentioned if you do. Starting with $3500 and using a 5% risk rule per trade will allow you to risk $175 per trade. 

The Magic Number: $10k

The magic number that we use with our traders is $10k. The faster you can get to that level, the easier your trading will become. It will be easier to control the risk and will also allow you to trade multiple contracts in many cases which will give you more trade management options. 

If you can start with $10k great but no worries if you need to start with less.

If you start with less, you can grow your account by staying disciplined with your system and potentially adding capital to your account when available. 

Conclusion: Trading as a Marathon

Remember, trading is a marathon, not a sprint. Don’t get caught chasing quick riches as it will oftentimes require too much risk. Instead, keep the risk small and focus on consistent growth over time. Let the power of compounding take over and you will be way ahead of most retail traders.