Today, I’m thrilled to share a strategy that can be a game-changer for your options trading account journey — proper scaling. Many traders aspire to grow their accounts from a few thousand dollars to substantial figures, and with the right approach, it’s indeed possible.
In this article, we’re going to walk through the step-by-step process of scaling your trading account. The key takeaway here is that this isn’t a get-rich-quick scheme. Scaling takes time, patience, and a deep understanding of risk management. So, let’s explore how to do it right!
The Options Trading Account Starting Point: $2,000 to $5,000
Scaling begins with a small account, whether you’re trading with $2,000 or $5,000. Regardless of your account size, the initial steps remain the same for everyone. The reason is simple — you must build confidence and trust in your chosen trading system.
Here’s the golden rule: Start with just one spread. In the early stages, you should trade one spread, and I mean it — one spread only. Why? Because scaling is all about moving up the ladder cautiously and gaining real experience. You should follow your strategy’s rules diligently. Give this phase at least a week before considering any substantial changes.
If you’re in the $2,000 to $5,000 range, focus on understanding your chosen strategy inside out and begin building a foundation for scaling.
The Golden Rule: Sizing Up Slowly
Now that you’ve followed the one-spread rule for a while and feel comfortable with your strategy, it’s time to think about scaling up. Remember, the speed at which you scale should align with your account size and risk management principles.
Your account size should dictate your next steps. Let’s take an example: if you have a $100,000 account, your maximum allowable spreads might be around 40. Instead of jumping straight to 40 spreads overnight, it’s crucial to proceed gradually.
Here’s a sensible approach:
- Move from 1 to 10 spreads.
- Then, progress to 20 spreads.
- Finally, aim for the goal of 40 spreads over time.
This gradual scaling not only allows you to get comfortable with increased trade size but also helps you fine-tune your risk management strategies as you go.
Options Trading Accounts Above $100,000
Once your account surpasses the $100,000 mark, there are some additional aspects to consider. The scaling process continues, but you can explore some beneficial options.
Consider Setting Up a Business: If a significant portion of your income comes from trading credit spreads, it’s wise to speak with a Certified Public Accountant (CPA) about setting up a business for your trading activities. This step can have tax advantages and provide opportunities to deduct various expenses.
IRS Election for Full-Time Trading: If you’re trading with a substantial account, you can elect to be recognized as a full-time trader by the IRS. This election opens up doors to deduct commissions, home expenses, and more, directly impacting your bottom line.
Trading SPX Over SPY: When your account size exceeds $100,000, you might contemplate switching from trading the S&P 500 ETF (SPY) to trading the S&P 500 index (SPX). The key advantage here is a favorable tax treatment, thanks to a 60/40 tax rule, which applies 60% of your profits to a lower tax bracket. However, SPX often requires larger positions to make up for reduced returns, so this option is most beneficial for traders with substantial account sizes.
The Art of Scaling Your Options Trading Account
Scaling your trading account is a process that combines discipline, patience, and a deep understanding of your strategy. Whether you’re starting with a $2,000 or $5,000 account or already have a six-figure sum, the core principle remains the same: gradual and methodical growth.
Remember, trading isn’t a race; it’s a marathon. Give yourself time to master your strategy, build confidence, and implement effective risk management. If you have questions or need guidance, don’t hesitate to seek help or connect with a community of fellow traders. The journey is challenging, but with the right approach, it can be incredibly rewarding.
Want to become a better options trader? Check out my FREE TRAINING + INDICATOR where I will show you exactly how I use this private indicator (that I’ll give you) to consistently profit.
Thanks for reading 🙂