The Benefits And Challenges Of Trading An IRA

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Traders start their careers at different times in their lives and for diverse reasons. I got into buying and selling Caterpillar Inc CAT out of school as more of a curiosity than anything else. A lot of traders I’ve talked with were introduced to the idea from a friend or family member—others got into it because of news stories on strong market conditions.

However, more and more I’ve run into people whose primary interest in trading the market is to generate savings for their future. Sometimes these are older folks who, seeing the growth in their 401k in recent years, are looking to squeeze out as much padding as they can for their retirement. But a growing number of interested or fledgling retirement traders are about my age or even younger, and they want to get hands-on with their savings.

That’s why for 2018, I decided to make one of my yearly trading goal savings-focused by conducting my trades through an IRA for the next 12 months. I’m starting the year with a balance around $11,000, which may seem generous when compared to the $585 I started last year with, but becomes a little less useful when one takes into account I’m starting below the $25,000 required to buy and sell stocks as a pattern day trader.

Margin traders are likely already familiar with the criteria behind pattern day trading. A pattern day trader as defined by the Financial Industry Regulatory Authority (FINRA) is any trader whose trading activity includes more than three intraday trades over five sessions, provided those trades constitute more than 6 percent of his or her total trading activity. This designation applies to any trading account that uses unsettled funds (primarily margin accounts) and requires day traders to maintain a minimum of $25,000 in that account in order to trade beyond these limitations.

Because I maxed out my contribution for the account ($5,500/year for both ‘17 and ‘18), I can’t add any more outside funds. That means I will have to grow that account by $15,000 solely through trading. While not exceeding 3 intraday trades a week.

I’m eager to get started on this challenge. I think risk management will be more of a struggle from the outset. Another feature of trading an IRA is that, while I can mitigate or even avoid capital gains tax on any trading profits, I also can’t write off any losses.

Accounting for this while also trying to push above that $25,000 mark will definitely make for some interesting perspective on how I might hold on to a position. Primarily, I going to focus on my risk management and put more of an emphasis on scaling out of positions, and most of all covering my principal, because it will be hard to make back

Disclosure: Warrior Trading is an editorial partner of Benzinga.

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