Being a day trader is the next hottest thing, but it isn’t for the faint of heart. It requires years of experience, discipline, and hard work.
A significant aspect of day trading is that you don’t need much to begin trading. Some brokers allow a minimum deposit of $10 to get started.
This amount is just enough for you to learn to a system without blowing your account—or your savings!
Continue reading to find the answer to the question all beginner traders want to know—how much money do I need to start day trading?
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Assess Your Finances: How Much Can You Lose?
For many traders, it isn’t about how much money you need to start trading with but how much you can afford to lose.
When you start trading, it may be inevitable that you will blow your account, meaning you will never see that deposit again.
It may not be a significant amount for those who want to start trading to produce side income. However, to be a profitable trader, you would have to dedicate hundreds of hours of chart time and effort to grow your account.
When you start to generate profit while practicing risk management and having a strategy in place, your account will compound overtime without losing much in the beginning.
In all, firmly decide if you want to be a serious trader or just want to test day trading without losing your shirt!
Which Market Are You Trading?
Depending on which market you trade can affect your initial deposit.
For instance, forex traders can begin with $1,000 to generate profit for small gains, which eventually adds up.
Here are some more quick facts about the trading market:
- There is usually a tiny minimum deposit required, such as $10.
- Trading stocks, options trading, metals, and futures are more tricky and require more capital
- Most professionals recommend $25,000 upwards or more for stocks
However, your broker will establish minimum deposits and trading rules.
How Much Do You Want to Make Day Trading?
How much you need to begin day trading can also depend on your end goal.
Do you want to start trading for a living? You’re going to have to dedicate a decent size to your account for it to grow in a reasonable time.
Take into consideration the hours you will spend learning, backtesting, charting, and losing before you become profitable.
Most beginners will also blow their first account. It is essential to set realistic goals for yourself in the beginning.
If you want to trade for a living, start with:
- The minimum required to get used to the platform
- Building emotional regulation
- Building a strategy
- Becoming consistent
The key is the find a strategy and market that works for you. Your personality will also play a role in the market, and it’s essential to know if you’re aggressive or passive.
For example, do you want to start earning $90 a week? Then you would need a $1000 account balance, risking 1 to 3%, allowing 1:2 or more risk-to-reward ratios (RR), and winning 2 out of 3 of your trades.
Depending on your account balance and risk management, you can still be profitable even if you lose most of your trades, as long as you allow your winners to run and cut your losses. This point is where risk-to-ratio is crucial, as 1:3 RR trades or more grow your account exponentially.
Your Experience Level
More than likely, you’re a beginner looking to get into day trading, but if you’ve dabbled into other markets, you’re more likely to increase your account balance.
Beginners can be enthusiastic and put all of their eggs in one basket, only to lose it all overnight.
If you’ve blown an account before, it can be traumatizing, limiting you to feel you must risk less than before.
Blowing your account is not shameful, as every successful trader has done it at least once.
Those who are beginners should begin with the minimum deposit allowed to get a feel for the market.
Casual traders who took a break and want to return to day trading to give it another go may be more inclined to also go with the minimum deposit to start fresh.
Traders who are experienced in other markets, such as profitable forex traders going into stocks, can put in enough to start generating significant profits, as it’s their day job.
About Margins and Leverage
Your day trading account most likely allows margin and leverage trading.
This allowance means you can borrow more than you have in your account and generate profits.
The larger the margins, the more you can profit—but also lose.
Traders who overleveraged can lose their whole account and more, possibly going under, causing them to pay their broker. This requirement is why you must practice risk management or lose more than you anticipated!
FINRA requires at least a $2,000 deposit to cover losses, although all brokers have unique rules and regulations.
Use a Demo Account
If you want to explore how much you need to start day trading, open a demo account.
Demo accounts allow you to “paper trade” in a live market environment without your money on the line.
From there, you can test strategies on how to grow a $1000 account or whichever you would like your deposit to be to fulfill your long-term goals.
While demo accounts are excellent for testing strategies, your emotions will not be the same, as you know it’s fake money and may risk more than you would in a real account.
Final Thoughts
New traders will always ask this classic question—how much do I need to start day trading?
The answer is: it depends on you and your goals.
It also depends on your current financial situation, as you never want to trade more than you can afford to lose. First, deposit an amount you are okay with losing, practice risk management, and grow the account.