Trading FAQ: 25 Questions Every Beginner Asks (Answered)

Getting Started

How much money do I need to start trading?

You can open a brokerage account with $0 at many brokers. However, for day trading stocks, the Pattern Day Trader rule requires $25,000 minimum equity. For swing trading or investing with no day trading restrictions, starting with $500-$2,000 is reasonable to take meaningful positions while managing risk.

What's the difference between trading and investing?

Trading involves shorter-term positions (minutes to weeks) aimed at profiting from price movements. Investing is longer-term (months to decades) focused on fundamental value and growth. Trading is more active and time-intensive; investing is more passive.

Is trading gambling?

It can be, if you're taking random bets without a strategy. But systematic trading with defined entry/exit criteria, risk management, and edge is fundamentally different. The key distinction: gamblers rely on luck, traders rely on probability and process.

What broker should I use?

For beginners: Fidelity, Charles Schwab, or TD Ameritrade offer good research and education. For active traders: Interactive Brokers or Webull have faster execution and more tools. Avoid brokers with payment for order flow (PFOF) concerns if execution quality matters to you.

Should I paper trade first?

Yes. Paper trading (simulated trading with fake money) lets you learn without financial risk. Most brokers offer paper trading. Use it to learn your platform, test strategies, and build confidence before risking real capital.

Strategy & Analysis

What's technical analysis?

Technical analysis uses price and volume data to identify patterns and predict future price movements. Tools include charts, indicators (RSI, MACD, moving averages), and pattern recognition. It assumes that market psychology creates repeatable patterns.

What's fundamental analysis?

Fundamental analysis evaluates a company's intrinsic value using financial statements, competitive position, management quality, and growth prospects. It asks: "Is this company worth more or less than its current stock price?"

Which is better: technical or fundamental?

Neither is objectively better. Short-term traders typically lean technical. Long-term investors typically lean fundamental. Many successful traders use both—fundamentals for what to trade, technicals for when to trade.

What's momentum trading?

Momentum trading profits from the tendency of strong trends to continue. Momentum traders buy assets showing upward price momentum and sell (or short) assets showing downward momentum. It's based on the principle that "the trend is your friend."

What's a stock scanner?

A stock scanner (or screener) filters thousands of securities to find those meeting specific criteria. You define parameters (price > $10, volume > average, etc.) and the scanner returns matching stocks. Tools like Finviz, TradingView, and Banana Farmer offer scanning functionality.

Risk Management

What's a stop loss?

A stop loss is an order that automatically sells your position if price drops to a specified level. It limits potential losses on a trade. Example: Buy at $50, set stop at $47. If price drops to $47, position automatically closes limiting loss to 6%.

How much should I risk per trade?

The standard rule: risk no more than 1-2% of your trading capital on any single trade. With $10,000 account, that's $100-$200 maximum loss per trade. This ensures that a string of losses won't devastate your account.

What's position sizing?

Position sizing determines how many shares/contracts to buy based on your risk tolerance and stop loss distance. Formula: Position Size = Risk Amount / (Entry Price - Stop Loss Price). This ensures consistent risk across trades with different price points.

What's risk-reward ratio?

Risk-reward ratio compares potential loss to potential gain. If you risk $100 to potentially make $300, that's 1:3 risk-reward. Most traders look for at least 1:2 risk-reward—meaning potential profits should be at least double potential losses.

Tools & Resources

What is social sentiment trading?

Social sentiment trading uses data from social media platforms (Twitter, Reddit, StockTwits) to inform trading decisions. It tracks mention volume, sentiment polarity, and buzz velocity to identify assets gaining attention—often before price moves.

What's a Ripeness Score?

Ripeness Score is Banana Farmer's proprietary signal that combines technical momentum indicators with social sentiment velocity. A high Ripeness Score suggests an asset is showing early signs of momentum across multiple dimensions.

Do I need paid tools to trade?

No. Free tools can work for beginners. However, paid tools often provide faster data, more features, and better signal quality. As your account grows and trading becomes more serious, quality tools typically pay for themselves through better execution and opportunities.

Common Concerns

Why do most traders lose money?

Studies suggest 70-90% of retail traders lose money. Common reasons: lack of education, poor risk management, emotional decision-making, overtrading, and unrealistic expectations. The minority who succeed typically spend years learning and developing discipline.

Can you actually make money trading?

Yes, but it's difficult and takes time. Profitable trading requires education, practice, discipline, and capital. Think of it like any skilled profession—success requires years of development, not days or weeks.

What's the Pattern Day Trader rule?

The PDT rule requires US traders making 4+ day trades in 5 business days to maintain $25,000 minimum account equity. A day trade is buying and selling (or shorting and covering) the same security on the same day. This rule doesn't apply to cash accounts, but cash accounts have settlement delays.

Is trading taxed?

Yes. Short-term capital gains (positions held < 1 year) are taxed as ordinary income. Long-term gains (> 1 year) are taxed at lower capital gains rates. Active traders should consult a tax professional and keep detailed records.

How do I know if a tip or signal is legitimate?

Be skeptical of everything. Legitimate analysis explains reasoning, not just conclusions. Beware of guaranteed returns, hot tips with urgency, and anyone selling picks with unrealistic track records. Do your own research. If you can't explain why a trade makes sense, don't take it.

What's the best time to trade?

For US stocks: the first hour after market open (9:30-10:30 AM ET) and last hour before close (3:00-4:00 PM ET) typically have highest volume and volatility. Mid-day tends to be slower. Choose times that match your schedule and strategy.

Should I trade stocks, options, or crypto?

Start with stocks. They're the most straightforward and have the most educational resources. Options require understanding additional concepts (greeks, expiration, etc.) and carry higher risk. Crypto trades 24/7 and is more volatile. Master one before adding complexity.