How Much Money Do you need to Start Trading?
Many first time traders think that they should invest all of their savings. This isn’t necessarily true. To determine how much money you need to start trading, you must first determine how much you actually can afford to lose and what your trading goals are.
First, take a look at how much money you can currently have in savings that you can use? If so, great! However, you don’t want to cut yourself short when you tie your money up in trading. What were your savings originally for?
It is important to keep 3 to 6-months of living expenses in a readily accessible conservative money market savings account – don’t use that money for trading! Don’t use any money that you may need to get your hands on in a hurry in the future.
So, begin by determining how much of your savings should remain in your savings account, and how much can be used for trading commodities. Unless you have funds from another source, such as an inheritance that you’ve recently received, this will probably be all that you currently have to trade commodities with.
Next, determine how much you can add to your trading account in the future. If you are employed, you will continue to receive an income, and you can plan to use a portion of that income to build your trading account over time. Speak with a qualified commodity trading advisor to set up a budget and determine how much of your future income you will be able to invest in your trading portfolio.
With the help of a commodity broker, you can be sure that you are not trading more than you should – or less than you should in order to reach your trading profit goals.
If the money that you have available for trading does not meet the required initial investment, you may have to look at other trading options. Never borrow money to trade commodities, and never use money that you have not set aside for trading the commodity markets!
The Importance Of Diversification
Don’t put all of your eggs in one basket!” You’ve probably heard that over and over again throughout your life…and when it comes to trading, it is very true. Diversification is the key to successful trading the commodity markets. All successful traders build portfolios that are widely diversified, and you should too!
Over time, research has shown that traders who have diversified portfolios usually see more consistent and stable returns on their trades than those who just trade in one commodity. By trading in several different commodity markets, you will actually be at less risk also.
For instance, if you have traded all of your money in one commodity, and that commodity market takes a significant plunge, you will most likely find that you have lost all of your money. On the other hand, if you have trade in ten different commodity markets and nine are doing well while one plunges, you are still in reasonably good shape.