How Much Money Do You Need to Day Trade?
This is one of those how long is a piece of string questions, the type of question a lazy salesperson uses to describe an overall ‘don’t know’ instead of outlining the factors that will determine the appropriate answer in the situation. Let’s dive deeper into How much money do you need to day trade, so that you can determine your requirements to reach your trading goals.
How to work out how much you need to trade?
Reverse Engineer Your Expenses
Whether it’s your personal living costs, your business costs or to simply pay for a particular bill on an ongoing basis, you can easily work out how much you need based on two variables.
The one you need to know, is the percentage return you expect to make per period, for example, do you expect to make 1% per month, 5% per quarter, 20% annually etc.
The second variable is your monetary requirements. If you want to cover your monthly living costs through trading, and you have an idea of the monthly profit you will average, you can determine the amount of capital you require to achieve this figure.
The formula is Amount $ divided by Percentage return which will give you the capital required to achieve the amount. Let’s look at a quick example, if I want to spend $4,000 per month, and my average return is 4% per month, I put $4,000 into a calculator divided by 4% (or 0.04 as a hard figure) which gives $100,000 capital required.
Effect of Percentage Return Change
As your percentage return increases, your capital required will decrease, meaning you need less money to achieve your income required.
Effect of Income Amount Change
As your required money increases, so does the capital requirement to achieve that return, if the percentage return stays the same.
How to need the least amount of capital
There’s two options, the first is keeping a low cost base (be frugal in your expenses) or earning a higher return (become better at trading or taking on higher risk) means the amount of capital required becomes lower.
The second option, is to get funded by a prop firm. Rather than putting up your own capital to trade, you can use other people’s capital (in this case a proprietary trading firm). Learn more about prop firms here.
How to trade with less than 25k?
Trading with less than 25k is easily possible thanks to access to leverage through CFD brokers. With massive leverage, you can access large amounts of capital in the way of leverage and using smaller capital.
How to day trade with little money
To day trade with little money, why not build up your data so that you know your average return and risk figures, so then you can reverse engineer what you need to save up for or whether you can pass the prop firm challenges to access bigger capital without spending too much.
How to trade with low capital
Trading with low capital simply means you won’t make the big bucks, but that’s ok. Why? It’s important to learn the skill of trading without putting too much pressure on yourself right away.
Trading with leverage
Trading with leverage is an important part of trading using CFDs. Now imagine trading with leverage, on a funded account. So you’re leveraged once by a prop firm, then by the broker they trade through, opening doors to far bigger sums than you would be likely to save in a short period of time.
Trading with a low deposit amount means trading with low likely returns in dollar figures. It’s probably not realistic to expect decent returns when trading with low amounts of money. Trading with a low deposit is a great way to practice, test and assess your trading ability and gathering data on your strengths and weaknesses. This can massively help you to improve as a trader and also determine whether you are likely to be able to pass prop firm challenges or be profitable on a larger account. Start small, risk less and become better over time. Once you have the skill of trading, you will have the ability to earn in many market conditions and give yourself a level of stability in the economic world.
Trading with less money
Trading with less money is a great way to start, but being realistic, to make anything of it, trading will require larger sums of money. Trading with less money means you can try out your skills in the market and see if you have what it takes. If you become profitable over a long period of time, you may wish to branch out and save up more or work towards passing prop firm challenges.
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