Trading Account Minimum, Definition and Implications
In terms of trading, a trader must maintain the trading account minimum in their trading account in order to continue trading, and/or to retain preferential conditions the broker may provide for having a certain amount of money (or more) in the account.
The trading account minimum is a dollar figure set by the broker, or in some cases a government agency. For example, to day trade stocks in the US a trader must maintain a $25,000 balance. This amount is established by law and enforced by US brokerages. Falling below this account minimum means the day trader can no longer day trade, although they can still take longer-term trades (swing trades or investing).
Each broker may establish its own account minimums. Since the broker may be providing a service to the client, the account minimum serves to protect the broker from providing services to clients who deposit a tiny amount of money only to receive the service for free. An example is a trader opening a trading account for $1 so they can receive the free charting application or research the broker provides. For this reason many brokers set the account minimum at $100, $1000, or sometimes $10,000 for certain types of trading accounts. In this case, if the account falls below the account minimum the trader will likely receive an email from the broker to increase their account balance. If the trader fails to do so the account may be closed and funds within the account will be returned to the trader; possibly less a fee. Alternatively, the client may not longer receive certain services from the broker until the account is brought up to the trading account minimum.
In some cases a monthly or yearly fee is charged to the client if their trading account balance is below the account minimum.
Trading account minimums may also be set by a broker in order to provide tiered service. Typically traders with higher amounts of capital in their account receive preferential fees–equivalent to a bulk discount, since traders with more capital are likely to make larger transactions. For example, if a trader deposits $5,000 they may get the broker’s standard fees and trading commissions. An account balance of $100,000 may qualify for reduced fees or commissions (as an example).
Each broker will have their own trading account minimums for various levels of service. Check with the broker before opening an account, as how much you deposit and maintain in your trading account could affect both the fees and commissions you pay. The image below is an example of what you may see on a broker’s website in regards to trading account minimums.