Getting Set Up
Brokers, account types, margin math, the post-PDT capital rules, and every order type - with the formulas, charts, and decision rules most guides skip.
You know what trading is. Now let's get you actually trading. No Wall Street address, no suit, no six-figure deposit. What you do need is: the right broker, the right account type, enough capital to survive mistakes, and a working grasp of how orders fill. This lesson covers all of it - with the math the glossy guides leave out.
1. Your broker is the door to the market
A broker is the intermediary that sends your buy and sell orders to an exchange. You don't trade with "the market" directly - you trade with the broker's systems, and they route, match, and settle on your behalf. Without a broker, no trade happens. Period.
Modern brokers all do the basics. What separates a good one from a disaster is how they handle six things.
The six-point broker checklist
| Criteria | What to check | Red flagFlagA brief consolidation (the flag) after a sharp move (the flagpole). Classic continuation pattern.Read in glossary → |
|---|---|---|
| Regulation | Licensed by a major authority (SEC/FINRA in the US, FCA in the UK, ASIC in Australia, CySEC in EU). Insured deposits. | Offshore "regulator" you've never heard of. No SIPC/FSCS equivalent. |
| Costs | Commission per trade, spreadSpreadThe difference between the best ask and best bid. Effectively the round-trip cost paid to market makers on every trade.Read in glossary → width, overnight financing, withdrawal fees. | "Commission-free" headline with wide spreads hidden underneath. |
| Minimums | Account minimum + per-trade minimum (if any). | Required deposits that don't match your budget. |
| Tools | Real-time charts, stop orders, alerts, extended hours, tax reporting. | Only market orders. No price alerts. No CSV export. |
| Asset coverage | Does it offerAskThe lowest price a seller is currently willing to accept. When you buy with a market order, you buy at the ask.Read in glossary → the instruments you actually want - stocks, options, futures, forex, crypto? Shorting allowed? | Advertises everything but gates half behind upgrades. |
| Reliability | Uptime during news events, fast fills, responsive supportSupportA price level where buyers have historically stepped in with size. Acts as a floor until it breaks.Read in glossary →. | Outages during earnings. Live chat that takes 48 hours. |
The real cost of a "free" trade
"Commission-free" brokers still make money. They make it on the spread - the gapGapA discontinuity on the chart - the open of one bar is meaningfully above or below the close of the prior bar.Read in glossary → between what you can buy at and what you can sell at - and on payment for order flowOrder flowThe live stream of market orders hitting the book. Reveals who is aggressive (buying at ask, selling at bid) in real time.Read in glossary →, where market makers pay the broker to route your order.
Round-trip cost = (2 × commission) + (spread × shares)
You buy 100 shares of a $50 stock and sell the same day.
Broker A - $0 commission, $0.02 spread: Cost = (2 × $0) + ($0.02 × 100) = $2.00
Broker B - $1 per trade, $0.005 spread: Cost = (2 × $1) + ($0.005 × 100) = $2.50
Broker A looks cheaper. But on a 1,000-share trade the spread scales linearly and Broker A costs $20 vs Broker B's $7. Read the spread before you read the headline.
2. How much money do you actually need?
Less than you think, but more than zero. The real floor isn't the broker's minimum - it's the smallest balance where a single losing trade doesn't wreck you.
The industry's hard-won rule: risk no more than 1-2% of your account per trade. That sets the math.
Max risk per trade = Account balance × Risk %
Risk % is the fraction of your account you're willing to lose on a single losing trade. 1% is the common pro standard; 2% is the aggressive ceiling.
Position size = (Account × Risk %) ÷ (Entry price − Stop price)
Once you know how much you're willing to lose and where your stop-loss sits, size is determined - not a judgment call.
Account: $500. Risk per trade: 1% = $5.
You want to buy a stock at $50.00 with a stop at $48.00. Stop distance = $2.00 per share.
Position size = $5 ÷ $2 = 2.5 shares → round down to 2 shares (total position $100, risk = $4).
Verdict: on a $500 account, 1% risk forces you into tiny positions. That's not a bug - it's what keeps a 10-loss streak from costing more than ~10% of your account. If that feels too small, the answer is fund more, not risk more.
3. Paper trade first - but not forever
A demo account is a virtual balance that trades on live market data. It's the single best way to learn a platform's buttons without paying tuition to the market. Use it to practice order entry, understand how fills happen, and get comfortable with your charts.
But know its limit: a demo account cannot simulate the emotional cost of real money. A -$400 paper loss feels like a rounding error; a -$400 real loss feels like someone slapped you.
| Demo is good for | Demo is useless for |
|---|---|
| Learning the platform's hotkeys, order types, chart tools | Training discipline under real pressure |
| Testing a strategy's rules mechanically | Training you to cut losers when cutting them hurts |
| Verifying you understand marginMarginBorrowed capital used to increase position size. Amplifies both gains and losses proportionally.Read in glossary → / T+2 / settlement | Learning what you do at 9:31 AM when the trade goes wrong |
Rule of thumb: 1-2 months on demo, then switch to a small real account - even $500 - sized so that losses sting but don't destroy you.
4. Cash account vs. margin account - the big decision
Every broker offers at least two account flavors. The choice shapes what you can trade, how fast you can turn over capital, and how badly a mistake can hurt.
- No borrowing, no leverageLeverageControlling a larger position than your capital alone would allow. 2× leverage means a 1% move produces 2% P&L.Read in glossary →
- No short sellingShort sellingBorrowing shares to sell, with the intent to buy them back lower. Profits when price falls. Losses theoretically unlimited as price rises.Read in glossary → (can't borrow shares)
- Settlement delay: T+2 on US equities
- No margin calls - max loss = deposit
- No Pattern Day TraderPDT ruleUS regulation requiring $25,000 minimum equity to place more than 3 day trades per 5 business days in a margin account.Read in glossary → (PDT) rule
- Best for: swing traders, beginners, anyone who wants simple
- Borrow to trade larger positions
- Short selling allowed
- Instant settlement - immediate reuse of proceeds
- Margin calls if equity drops too far
- Broker-specific intraday margin rules (see §5)
- Best for: day traders, short sellers, active strategies
Cash account: T+2 settlement is the catch
When you sell, the cash isn't yours for two business days. Until it settles, you can still spend it on new trades, but if you sell those before the original settles you commit a "good-faith violation" and eventually lose same-day tradingDay tradingTrades opened and closed within the same session. No overnight exposure.Read in glossary → privileges.
Monday - You deposit $10,000 and buy 50 TSLA at $200 = $10,000. Tuesday - You sell the 50 shares for $10,200. Your buying power shows $10,200. Tuesday (later) - You use that $10,200 to buy a different stock. Wednesday - You sell that new stock before the original Tuesday sale settles on Thursday.
Good-faith violation. Three of these in 12 months and your cash account gets restricted to settled-funds-only for 90 days.
Fix: wait until Thursday before selling anything bought with unsettled proceeds.
Margin account: the leverage equation
Margin is borrowing. The broker fronts part of each position, which multiplies both your buying power and your risk.
Buying power = Deposit ÷ Initial margin requirement
US stock day-trading margin is typically 4× (25% initial margin). Overnight margin is 2× (50%). Futures and forex run much higher.
| Deposit | Initial margin | Buying power | Leverage |
|---|---|---|---|
| $5,000 | 50% | $10,000 | 2× |
| $5,000 | 25% | $20,000 | 4× |
| $5,000 | 10% | $50,000 | 10× |
More buying power is not free money. A 10% move against your position is a 20% hit on 2× leverage and a 40% hit on 4× leverage. The chart below shows exactly what that looks like.
Maintenance margin and the margin call
The broker doesn't just set an initial requirement and walk away. They also set a maintenance margin - the minimum equity you must keep in the account as a percentage of the position's current value. Fall below it and the broker sends a margin call: deposit more or they liquidate your positions, often at the worst possible price.
Maintenance margin = Current position value × Maintenance %
Trigger price = Entry × (1 − Initial margin %) ÷ (1 − Maintenance %)
The price at which equity decays to the maintenance floor. Below this, the call fires.
You deposit $5,000 and buy $10,000 worth of a stock (2× leverage, 50% initial margin). Maintenance margin: 25% of current position value.
Your starting equity: $5,000 (your money) - the other $5,000 is borrowed.
If the stock drops X%, your equity drops by 2× that - because you own $10,000 of exposure.
The callCallAn options contract giving the buyer the right but not the obligation to buy 100 shares of the underlying at the strike price on or before expiration.Read in glossary → triggers when: (Equity) ÷ (Position value) < 25%
Solve: (5000 − 10000·X) ÷ (10000 − 10000·X) = 0.25
→ X ≈ 33%. A 33% drop in the stock wipes you past the maintenance line.
The chart below plots the equity curve as the stock declines, with the 25% maintenance threshold drawn in red.
5. Day trading capital - the PDT rule is gone (as of April 2026)
This section is fresh - the rules changed on April 14, 2026.
From 2001 through April 2026, US day trading lived under the Pattern Day Trader (PDT) rule: more than 3 day trades in any rolling 5-business-day window flagged your margin account as a pattern day trader, and PDT-flagged accounts needed at least $25,000 in equity to keep trading. Below that threshold, the account got restricted to 3 day trades per 5-day window for 90 days.
On April 14, 2026, the SEC approved a FINRA rule change that eliminates the PDT designation and its $25,000 minimum entirely. The old trade-counting framework is being replaced with real-time intraday margin calculations - brokers now size your day-trading buying power based on the actual risk of your open positions, not on how many round trips you've done this week.
Before vs. after
- Day trade = buy + sell same security, same day
- > 3 day trades / 5 business days → flagged as PDT
- Flagged accounts need $25K equity to keep day trading
- Below $25K + flagged = 90-day restriction
- Same rule at every US broker
- No PDT designation, no $25K federal minimum
- Broker calculates intraday buying power from actual open-position risk
- Broker-specific account minimums still apply
- Exceed your intraday margin → real-time reduction or call (not a 90-day flag)
- Rules now vary between brokers - compare them
What still matters
- Your broker's minimum. A $100-minimum broker is still a $100-minimum broker. The change was regulatory, not competitive.
- Intraday buying power. Instead of counting trades, your broker now continuously measures the risk of your open positions and caps your exposure in real time. Blow past the cap and you'll see a reduction or call immediately, not days later.
- Margin calls. The math in §4 still applies unchanged. Leverage amplifies P&L; maintenance thresholds still trigger liquidation. Nothing about that changed.
Historical context. The PDT rule was introduced in 2001 after the dot-com bubble as a "protect retail from themselves" measure. It was widely criticized for being blunt (a $26K account could day-trade freely; a $24,999 account could not) and badly targeted (it counted trade frequency instead of actual risk). Its replacement is risk-weighted, not activity-weighted - closer in spirit to how margin is calculated for professional accounts.
6. Order types - how trades actually fill
Click "buy" and a lotLotA standardized unit of currency in forex. Standard lot = 100,000 units, mini = 10,000, micro = 1,000.Read in glossary → can happen. The order type controls the trade-off between getting filled and getting a good price. You can't have both - pick the one that matches the job.
| Order | What it guarantees | What you control | When to use |
|---|---|---|---|
| Market | Execution | Nothing (price is whatever) | You need in/out now, liquid market |
| Limit | Price | Max (buy) or min (sell) price | You want a specific price; willing to miss |
| Stop-lossStop-lossAn order that triggers a market order once a specified price is reached. Used to cap losses on an open position.Read in glossary → | Execution after trigger | Trigger price | Exit protection on a losing trade |
| Stop-limit | Price after trigger | Trigger + limit | Selective exit; skip gap-downs |
| Trailing stopTrailing stopA stop that moves in favor of the trade as price advances, locking in profit. Common variants: ATR trail, structural trail, chandelier.Read in glossary → | Execution after trigger | Trail distance | Lock in gains during a trend |
| GTC | Duration | Order stays open until filled/canceled | Set-and-forget limit levels |
| OCO | Dual exit mechanics | Profit target + stop in one action | Auto-manage an open position |
| OTO | Staged execution | First order triggers the others | Pre-plan full trade before entry |
The three you'll use every day
Market. Fastest. Least controlled. On a thin stock or during fast markets, the fill price can slip noticeably from the quote you saw. Reserve for liquid names where a cent or two doesn't matter.
Limit. The price cop. Fills only at your price or better. Trade-off: the market can run without you. Use it when you have a level in mind and aren't willing to chase.
Stop-loss. Your insurance. It's a conditional market orderMarket orderAn order to buy or sell immediately at whatever price is available. Guaranteed execution, not guaranteed price.Read in glossary → - which means the execution is guaranteed once triggered, but the fill price is not. In a gap-down open, a stop at $95 can fill at $88. This is also why stop-limit exists: add a limit price to prevent panicky fills - at the cost of maybe not filling at all.
Trailing stops - the profit lock
A trailing stop moves with the price. Set a trail of $5, enter at $100, and the initial stop is at $95. The market runs to $120 - the stop follows to $115. The market pulls back to $115 - you're out at $115, locking in the run.
OCO and OTO - the pro's hands-off setups
OCO (One-Cancels-the-Other) pairs a take-profit limit with a stop-loss. Whichever fires first cancels the other. You place it after you're in a position to bracket it: upside target + downside insurance, no monitoring required.
OTO (One-Triggers-the-Other) goes a step further. You stage the whole trade before you're even in: a limit-buy, which - if it fills - automatically places the OCO bracket behind it. This is how you pre-plan setups for the next day without sitting at the screen.
Math cheatsheet
Five equations run every decision in this lesson. Keep them handy.
Risk = Account × Risk %
Size = Risk ÷ (Entry − Stop)
Buying power = Deposit ÷ Initial margin %
Trigger = Entry × (1 − IM %) ÷ (1 − MM %)
Cost = (2 × commission) + (spread × size)
Key takeaways
- You need a broker. Pick on regulation, total cost, reliability, and asset coverage - in that order.
- Commission-free brokers aren't free. Check the spread.
- Fund enough that 1% risk is big enough to matter but small enough to survive a losing streakLosing streakConsecutive losing trades. Statistically normal, not a strategy failure. A 40% WR strategy sees 7-loss streaks routinely.Read in glossary →.
- Use demo to learn the platform. Switch to real money to learn yourself.
- Cash account: simple, T+2 settlementT+2 settlementUS equity trades settle 2 business days after the trade date. Proceeds from a sale aren't officially cash until T+2.Read in glossary →, no PDT. Margin account: leverage, shorting, margin calls, PDT if you're day trading US stocks.
- A 33% drop triggers the margin call in the classic 2×-leverage setup - that's algebra, not opinion.
- The PDT rule (including the $25K minimum) was eliminated by the SEC on April 14, 2026. Day-trading capital is now set by your broker's intraday-margin policy, not a federal threshold - so compare brokers on their day-trading rules as part of the §1 checklist.
- Pick your order type by what matters more - price or execution. You rarely get both.
Up next: how markets actually set prices, why spreads exist, and what's really happening inside a quote.
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