How Much Capital Do I Need to Start Day Trading?

How much capital you need depends on the style of trading that you wish to do, where you trade, and also the instruments that you trade.

Typically, to day trade in the US you will need to maintain an account balance of $ 25, 000. You should start with at least $ 30,000 if you plan to make more than that 3 day trades per trading week (more than 3 day trades per week will give you day trader status and you will be subject to the $ 25,000 minimum account balance). You can day trade other global markets without this account minimum. You should open a typical account with at least $ 10,000 if you are going to do other forms of short term trading or trade global markets outside the US. With smaller accounts than this, fees can become a very large obstacle to overcome. As the time frame for your trades expands, you will be trading less frequently, and fees become less of an obstacle and accounts can be opened with smaller amounts.

While the above are minimums that are in place just to enter the market, it is important to remember that one of the common errors traders make before even starting to trade is that they are under capitalized. Keep in mind that losses do occur, so you need account for draw downs in your capital. After taking losses you still need to have enough money to keep trading. Also, small amounts of capital make it hard to set proper stop levels on trades. The market constantly fluctuates and this is normal, but if you have very little capital you can not set a stop level outside of these normal fluctuations. This means you will get stopped out on your trade prematurely and lose money overall. Having a larger account lets you place stops at logical levels, and place those stops where they are supposed to be.

BUT, new products and markets have become available to the smaller trader recently that allow accounts to be opened for small amounts of money no matter what trading style or time frame the trader uses. Two such markets are the FOREX or foreign exchange market, and the CFD or Contracts for Difference market. Options, futures, FOREX, stock, and commodity trading through Contracts for Difference (CFDs – I will explain these in a moment) can provide margins up to 200:1. While this is an advantage to the smaller trader (because only a small amount of capital is needed), it is also a useful tool for seasoned traders who want to magnify their gains through the use of leverage not available in most markets. Remember, increased leverage means increased risk! Discipline is always paramount in trading.

A CFD is an instrument that mirrors a given stock price, moving cent for cent with it. Since the CFD is not actually a stock there is no commissions and no fees, you simply must pay the offer price to enter long positions and pay the bid price to exit long positions (using a fixed spread). You can also short any CFD at anytime. There are no downtick rules like you would find on certain exchanges. Not all stocks are tradable as a CFD, but you will have available to you over 150 stocks from different exchanges that you will be able to trade. You can also trade many global indexes, as well as gold, silver, oil and many other commodities using a CFD. Accounts can be opened for as little as $ 100 with forex accounts, which can give you up to $ 20,000 in buying power. Safe guards are in place so you can not lose more than your original account deposit with many brokers.

If you wish to trade CFDs or commodities you can likely open an account for as little as $ 1000. Leverage on this type of trading varies from broker to broker. But either way, both these alternatives provide a much less capital intensive way to enter the trading arena.