STL Biker asked:
Let’s say someone has a brokerage account with $50,000 in it. How much of it should they trade in order to reduce risk but also make some money? How do you reduce risk in your Day Trading?
Let’s say someone has a brokerage account with $50,000 in it. How much of it should they trade in order to reduce risk but also make some money? How do you reduce risk in your Day Trading?
{ 3 comments… read them below or add one }
How about trading ETF instead of stocks less risk higher reward
All kind of ETF
The answer to this depends largely on the risk of the strategy. If you had an absolutely riskless system (impossible but just for the sake of argument), of course you would risk a lot. But for just starting out, I’d recommend using none of the margin at all and only investing a portion of the equity itself. Or better yet, paper trade (see below).
Be sure you’ve got a genuinely profitable strategy, because most people (over 90%, according to most studies) lose much or all of their captial within a fairly short period of time. If you’re not sure about this, or even if you think you are, then you should “paper trade” or simulate your trading. Most brokerages now offer paper trading features. This will also give you a much better idea of how much you want to risk. But even then, there’s a lot of risk (simulators aren’t perfect, and things change).
If you have a brokerage account of $50k, that means that you are ready to risk $50k savings. Your plan is to invest this money and get a faster return than you will get at a bank. You want to reduce risk, while getting a better return. To reduce risk, you never want to put all your eggs in one basket. So you want to invest in many stocks. Mutual funds, are funds that have hundreds of managed stocks in them. Even with mutual funds you want to have different funds. Right now, Asia Pacific, emerging market, and south american funds are all performing very well. ETF’s would be another way to add eggs. Some very good ETF’s right now are UYM, FXI, USO. Two very good mutual funds are EMGYX DSCVX. You can buy all these thru a broker or thru an online broker. If you further want to add to your risk, you might want to have 10% of your portfolio in bonds. Buy high grade bonds, look for about 5% return. You have to watch the market. As long as the market remains in this bear market rally, you want to stay in these investments. If the market tops out, Obama’s stimulous has run its course, you want to switch back to cash, keep the bonds working for you. Sit back recollect your thoughts. When the market does top out. You can buy inverse ETF’s These inverse ETF’s go up in value as the sector they represent come down in price.