In the world of make believe trading, the cyber-streets of the Internet are paved with gold. You sit down at the computer and run your fingers across its keys like a concert pianist about to play a Beethoven concerto with this technology. In no time you have not just a successful trade but a phenomenal win and you are calling your car dealer for the swankiest limo in town…..
Meanwhile back in the real world, where such dreams are a million miles from the truth, it is for the protection of everyone involved in trading that regulations exist to ensure that every trader has sufficient funds to enable him to proceed. Having said that, the amount of money that you should be storing in your metaphorical back pocket will vary according to the sort of trader that you want to be and the commodity that you will be trading.
Let me start with the situation for our readers in the United States. Your minimum account balance has to be $25,000 and that means in order to trade you will practically require at the very least another $5,000 and in all probability a good deal more. Let’s say that you plan to make than four day trades in a week which is what is required to give you day trader status. If your reserves are too limited, you run a risk that with a couple of poor results your account balance will fall below the $25,000 level and you will thus be unable to continue day trading until you make up the difference.
The requirements in other markets are not as severe as the USA and do not have the $25,000 minimum as a legal specification. You should still expect to open a day trading account with at least $10,000 for short trading outside the USA – the rules do vary from market to market. But the really important point that we have to make is that one of the biggest, the most elementary and sadly the most frequent error that new and inexperienced traders make is to trade undercapitalised – because that can be truly disastrous. Losses are going to happen because the market is fluid and fast moving and indeed they happen to experienced traders – no one is too clever to be exempt. You must be able to cover any losses and you then still need to have the cash in hand to continue trading.
An experienced hand in the market has a precautionary approach that he never risks more than 1% of his capital on any trade. Even on a fairly modest piece of trading your true risk could be in the order of $12,500. So the answer to the question posed at the top of this article is that you probably need much more than you thought in the first place! The casual, work when you want to aspect of day trading is attractive but never forget that money is at the root of it all and that it can certainly run out very quickly!