Comparing Account Size Advantages
Things to Consider
Small Accounts (Less than $25K)
- Less emotional attachment.
With a smaller account, one may take on an amount of risk which they are willing to tolerate. Using money which isn't life-changing gives you more clarity in your decisions, allowing you to make decisions from an outsider perspective
- Less trade participation (3 Day Trades Weekly Per Broker)
- Smaller Profit Per Trade
Some experience the need to "get rich quick." We must understand that a smaller account will yield smaller gains. The expectation for profit in which you have for yourself must be reasonable. Think about 10% gains every 1-2 days on your position. You won't be making six figures your first year building a smaller account. Don't allow this to pressure you into "Going All In." or going against your risk/reward strategies.
- Beware of the beginners luck
EX: Trader makes 100% on one trade, holding through a large move, leading to a win from bad practices (luck). Trader's brain is now attuned to believe they can yield these level of gains each time they enter a position. This will cause the trader to get greedy and potentially become stuck holding the bag hoping for another miracle
- Flexibility In Lower Volume Stocks.
EX: Smaller accounts can scale into lower volume traded stocks with a higher % of their account. Too much volume into a low volume stock can move price and cause other traders in that sphere to notice you and trade against you. Having a small account allows you to stay unnoticed while you profit on the low volume movements.
- Cheaper Learning Lessons.
This is my favorite advantage that smaller account users have over larger account users. The ability to make trades, experience, and learn the market hands-on while taking on less risk. Time and time again I see users begin their trading career using their life savings to start. It's better to use an amount that you saved up over only a few months and try from there. The key here is not to be eager to multiply your wealth instantly, but rather preserve your account through slow and consistent growth. To do so, you must be confident in your abilities and certain that you have reached this defined level of knowledge. Trading small until you reach there is ideal in case anything goes wrong.
Larger Account ($50K+)
- Able to add more into positions through drawdowns.
EX: A future bankrupt company like ACI or MNKD spikes 120%. I'd short into that spike because I believe in the longterm the stock will go back to prior lows. We then experience a situation where the stock then jumps another 100%, causing a large unrealized loss on my account. HOWEVER, with the amount of capital that I am trading with, I can withstand this drawdown and profit 40-50% over 1-2 weeks after the drawdown is finished simply because I am able to hold until this company realizes it's true value of $0 (This is in fact how institutions short, because in many scenarios they are not allowed to liquidate their position right away - so they hold through the drawdown)
- More money = more room to diversify your strategies. Instead of focusing on just one short term or long term trade, you can now mix longer term holds while making day trades.
- Able to withstand more mistakes. Theoretically, if one traded on the same size even after their account has grown 200%, their room for error has now grown by 3x.
- Able to profit on smaller cent moves (0.05 - 0.07 cents on 10K shares = $700 profit)
- Ability To Access Premium Brokers
Having more money allows you to take advantage of multiple PDT free brokers (as each broker provides their own advantage, you'll begin to utilize more perks from each broker to your advantage.) More broker can also mean you have access to a larger list of stocks to short.
- Exploring More Advanced Strategies
Access to premium brokers also opens the gate to being able to short hard to borrow stocks. Penny stocks all drop exponentially in the long term and the ability to take advantage of this type of trading is only done so on very peculiar brokers which require larger deposits.