Of course, it is possible to begin trading with very little capital, However, this also usually results in a short experience. You will be too sensitive to the moves of the market and tend to be stopped out regularly as you have tight stop losses. It is worth remembering that most trades will go against you before turning in your favour….if they are going to!
Day trading requires less capital than holding positions into the next day or week as doing so will increase the risk. As we always suggest, set a maximum limit of how much you are willing to invest in yourself to become a trader.
Be clear how much money you can afford to lose
It is always best to save first as one thing is certain, trading capital must only be capital/savings you can afford to lose! It’s important to ensure you only use a small percentage of any savings, and remember that limit you have set yourself.
Another factor will be whether you NEED to make money or are using trading as a second income. This is an important factor as those that need to make money to cover their expenses from day one tend to struggle. The main reason for this is because they are under pressure to trade and make money, and not to lose any money. This ultimately leads to desperation and taking on impulsive trades rather than being patient and waiting for the high-probability trades.
Be wary of leverage
Something else to be wary of is leverage. Many brokers will offer you leverage, although the levels have been drastically reduced now due to regulatory changes, it is still possible to lose considerably more than your deposit. Leverage is great when you win but can be devastating when you lose: you have been warned! Always place your stop loss in the market to help protect yourself.
How you trade will be something else to factor in, along with your experience level. If you are new to trading, then practice on a simulator to hone your trading skills first. Practice until you are consistently profitable and have developed your trading style, and practice with the same value as you will trade live!
If you have developed your trading style, then ensure you follow the same style with your live trading. This sounds easier than it really is as when it is your capital at risk (and it will be) then the emotions will flood through you.
Make sure you do your homework
Most professions require training and yet since trading went electronic you can jump straight in! This certainly does not mean that should! Take some time to research trading, risk management, and other aspects of trading, even consider some training as you would in most careers. Think of it this way; would you want a dentist without training or qualifications to work on your teeth or a lawyer without any training to defend you or a doctor without experience to operate on you? Hopefully not!
Therefore, the answer is not so much about how much you need to start day trading but how much should you spend on learning first to prepare yourself for trading. Then consider how much to risk of your savings.
If you have any doubts then seek advice first before trading or at least perhaps attend a trading workshop or course to begin to understand trading, risk management etc.
Armchair Trader readers can currently enjoy a discount on Chris Tubby’s trading courses using the discount code ARMCHAIR5% when booking. More details on Chris’ courses can be found at www.masterc.co.uk