Day Trading For Dummies Part 1: Risk Capital To Get Started In Day Trading
Day Trading For Dummies Part 1: Risk Capital To Get Started In Day Trading
You're probably not a dummy at all outside of day trading, so let's help you lose the Day Trading For Dummies tag as quickly as possible.
Let's start with how much money you need. After all, no matter how intrigued or enthusiastic you may be about making $100k+ each year as a day trader, you need a few dollars to get off the ground. It takes money to make money, as the old saying goes.
And if you have the necessary risk capital available (risk capital means money you can afford to lose, not money you need to pay for the mortgage or your kids' education), then the rest is simple.
Remember: risk capital means money you can afford to lose. No exceptions! If it's gone, it's gone and you're still putting food on the table, living in your current dwelling, and otherwise paying all the bills. If you break this rule you're guaranteed to fail in day trading.
So how much capital is enough?
I day trade futures contracts myself. I feel you'll need at least $5,000 in risk capital available, (preferably $25,000) to execute most futures trades with your own money. You might make $100k in your first year by starting with $5,000 but it's unlikely. Therefore I recommend $25,000 as a starting point if you're truly serious.
And if you're into stocks, you'll need even more capital unless you're day trading penny stocks. A small account limits you to trading the higher dollar cost stocks and that's not good. Also, there isn't as much leverage in stocks as in futures, which also restricts how much you can make.
Of course, you can get some leverage by day trading options on stocks. This will cut down your capital requirements. But $5,000 is still the minimum you should be committing. Otherwise you're just too vulnerable to getting eliminated from the day trading game before you even get started.
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