Guide to Day trading

Before I even answer this question, please note that day trading should not be carried out with scared money. Scared money is money that a trader cannot lose because it is needed for something else; for example, money needed to pay the rent, money needed to feed the family, money needed to pay the bills, cash advances from credit cards, money obtained from loans, etc. Day trading should be done with risk capital; money that can be lost without permanently altering the financial condition of an individual and/or his loved ones.

There are two types of people that ask the "minimum account" question. The first type does so because they have very little capital at their disposal; the second type because they don't understand the business of day trading well and want to start with the smallest possible amount for fear of losing it all. Both of these types of people are mislead. The first type should not be trading in the first place. As we mentioned before: trading is for money that you can AFFORD to risk. If you have very little money to your name, you should not be risking the little you have in day trading. Despite the fact that currencies can be traded using a mini account with only a few hundred dollars, I don't recommend for anyone to do this if they can't afford to lose the money. Understand the reason why I say this; it is not because day trading is a guaranteed way to lose, but because a person cannot perform at an optimum level with the dreadful thought of losing in the back of their minds.

The second type of person might actually be taking more risk by day trading with the minimum amount required by the broker rather than the proper amount he NEEDS to trade with. "Wait a minute", you might say; "Did I hear you correctly? If you day trade with less, you are taking more risk?" Listen to me for a minute. When day trading, you cannot risk too much on any single trade. In order to do this you need to be able to use only a portion of the trading capital in your account. If you hardly have any money in your account, how can you divide the money properly to properly size your positions? You can't!!! It is better to deposit $15,000 in an account and risk $300 than risking the same amount using a $2,000 account. If you learn good trading strategies and become disciplined in applying them, it shouldn't matter how much money you open an account with.

Should I day trade with all my money?

Let me answer your question with another question. Should you bet the house on one spin of the roulette table in Vegas? Not a chance! The attractiveness of day trading lures many inexperienced investors that risk too much of what they have in the day trading arena. This is a big mistake. In general, an investor should not day trade with more than 25% of his entire net worth (preferably, not more than 25% of his liquid net worth; stocks, bonds, CD's, bank accounts, cash, etc.). You might ask, "Does that mean that I cannot day trade unless my liquid net worth is $100,000 or more?" The answer is, "Only if you want to day trade stocks." Remember that to day trade stocks you need at least $25,000 in your trading account by law (preferably $30,000 to give you some margin for error). So if we use the 25% limitation figure above, you need to have at least $100,000 to be able to day trade stocks with $25,000. In my opinion, nowadays there are better things to day trade than stocks. "Like what?", you ask. Like currencies (foreign exchange, or forex). Currency daytrading rovides many advantages that you can read about in this website, including being able to use very little money to start out. You can open a mini forex account with as little as $250. This means that pretty much anyone can give day trading a shot without betting the house. Rather than risking the only $25,000 you may have to day trade stocks, you can open a mini account. with a few hundred bucks and begin your day trading career.

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