One of the many benefits to trading Options is that you get the advantages of being able to use leverage, with limited risk (limited to the price of the Option, or width of the Options Spread). However, in order to trade most Options Strategies, you will need a margin account. Margin accounts require some initial capital requirements. However, it’s nothing to stress out about, as you see here in this article.
The short answer is $2,000.
Read on to find out why, and what you can do to get around it.
According to FINRA (Financial Industry Regulatory Authority), in order to obtain a margin account through your broker, you must have a minimum of $2,000 in the account prior to applying for the margin account.
Now for some, that may seem like a lot of money to commit to trading. Here’s the best part though. Once you’ve gained margin account through your broker, you don’t have to maintain a particular dollar amount.
That means that you can take out as much money, or add as much money, as you would like to.
The only requirement here is that you must have that initial $2,000 in the account when applying for a margin account.
Why Do I Need A Margin Account?
Good question. Thank you for asking.
The reason that you need a margin account is that it allows you to trade “on margin” by way of using leverage. “Whoa whoa, I don’t want to use leverage. That s***’s dangerous”, I hear you quietly exclaiming.
The fact is that when you use Options, you are inherently using leverage because every Options Contract controls 100 shares of the underlying Stock or 1 Futures Contract (depending on whether you’re trading Stock or Futures).
So even though you’re just paying the price of the premium that the Option is worth to control that 100 shares of Stock, you’re still paying a discount to control those 100 shares– the fact that you’re paying less to control more shares means you’re using leverage.
The Common Sense
Now I’m sure that some of you are thinking of trading Options, because you saw some guy on YouTube in a Lamborghini saying that he turned $500 into $100k in 3 months. Well, I am here to tell you to get your head out of your you-know-what and to knock some sense into you.
Is that possible? Absolutely. Is it probable? Not in the slightest. At least I wouldn’t bet on it, and you probably shouldn’t either.
The reality is that, while you can make an above average rate of return on your capital (i.e. 30-40% return on risk per trade, instead of 8% a year total), you are not going to be able to double your account every week by trading Options. Like I said, it’s possible but not probable. Having that kind of mindset where you think you’re going to double your account each week or month is a gambler’s mindset– not a trader’s.
Don’t Skip This
The reality is that you can make some decent money trading Options if you know how to do it. A lot of people see the amazing upside gain, but seem to forget that they are risking their hard-earned, real money.
Wouldn’t it be wise to mitigate that downside possibility of losing your hard-earned money?
I mean, by all means, you do what you want. But this is a serious profession, that is incredibly difficult. If you’re serious about trying to make money (and not gamble), then I recommend you check out this free resource. It’s our mini-course on Options trading. It’s designed to give you an edge over the people you are competing against in the market.
There are people who live and breathe the market, and they are preparing to take their competitors money in the battlefield that is the market.
Trading isn’t like high school sports. There is no junior varsity. Novices compete against highly skilled professionals on the field. That’s not to say that you can’t compete against these professionals and win, but you shouldn’t do it willy-nilly.
One of my favorite phrases by Juma Ikangaa is “The will to win means nothing without the will to prepare”. Get prepared, and prepare to win.
I hope this article was helpful to you in more ways than one. If it was, please let us know in the comments below. Thanks for reading!