Many beginner option traders ask this question a lot so I want to answer this FAQ in further detail. Trading options is just like any other business that offer extremely lucrative rewards along with extra risks.
If you are serious about trading options then continue reading before you start your options trading journey so you can avoid key mistakes.
Build an Emergency Fund First
Many of you may be interested in trading options to get yourself out of financial trouble but I think this is a the wrong attitude to have. Trading options requires a lot of emotional discipline that can drain your energy over time. You need an emergency fund or financial cushion to protect yourself during your options trading journey so you don’t make irrational decisions based on financial need.
That’s why having an emergency fund is so important. I generally recommend saving 3 to 6 months of living expenses in a separate savings/checking or brokerage account that you will never touch.
An emergency fund will protect you from an unexpected job loss or financial crisis plus it helps you sleep a lot better at night.
Once you have a solid emergency fund then you can consider allocating funds for trading options. The truth is 90% of options traders lose money so you don’t want to risk your emergency fund in this matter.
Set aside a decent chunk of savings then find out more ways to save up funds for your trading account.
How to Save Money for Trading Options
I built up a substantial savings in stocks & crypto before I begin trading options on Robinhood. If you are having trouble saving money then try some of these suggestions to boost your funds:
- Automate Your Savings: Set aside a predetermined percentage of your income into a separate trading account
- Get rid of expensive habits: Stop smoking, drinking alcohol, gambling, or dating to free up more cash
- Track your spending: See exactly where your income is going and get rid of unnecessary stuff.
Minimum Amount for Beginner Options Trading
When I first started trading options on Robinhood, I set aside $500 in my brokerage account and made 400% gains trading TSLA calls. Many other experts recommend starting with $5,000 to $10,000 but I know how tough it can be to save $5,000 during the current times.
You can always start off small and grow your account over time as long as you trade with discipline, avoid massive losses, and take profits quickly.
$500 to $1,000 is enough to get started and start seeing some gains.
$5,000 to $10,000 will give you a much better starting point and allow for some rookie mistakes without completing blowing up your trading account.
The best amount to start with is $25,000 so you can avoid the Day Trading Pattern rule.
I always make a habit of saving up some extra cash right before earnings season so I can start trading options more aggressively.