Can you make money from day trading and how much do you need to start?

Author: Zoran Temelkov

The simple answer is yes, but it is not an easy process

Excited day trader celebrates successful day on the stock market
You no longer required huge sums of money to make day trades – Photo: Shutterstock

If you plan to become a day trader, one of the first questions is how much money you need to day trade. There is a general belief that you’ll need an enormous sum to start. In the past, this may have been the case, but today you can day trade with just a few hundred euros or pounds, depending on your country’s regulations and broker requirements. Before we talk about the exact numbers, let’s take a look at how you make money as a day trader.

How do day traders make money?

Day trading is when you buy and sell assets on the financial markets within the same trading day through a margin account. It means day traders make profits when they execute long trades – buying at a lower price and selling at a higher price – or when they take short positions by selling at a higher price and then buying at a lower price. The difference between the prices in the opening and closing position represents your profit. So, you can make money with day trading by opening and closing multiple trades per day, without leaving an open position for the next day.

Day traders can also use leverage offered by their brokers. Although this can be a somewhat risky process, they can open positions with a much higher value than their initial capital and with the opportunity to make higher profits. However, they also stand to lose the entire amount or portion of their initial capital much faster.

How much money do you need for day trading?

Day trading activities are subject to specific rules and regulations, which were created to protect both traders and brokers. The rules can differ from one country to another.

One of the common issues for day traders is the minimum balance needed. While some countries, such as the US, impose a predefined minimum for pattern day trading stocks, there is no minimum balance required by regulators in Europe. Traders should also pay attention to the minimum balance required by the broker they plan to use.

The amount of money you need to start as a day trader depends on numerous other factors:

The markets and the types of assets you want to day trade (stocks, forex, commodities, futures): There is no minimum amount of capital needed for forex day trading, but it is generally accepted that you should start with around €500 (or £500 or $500) or even €1,000. The minimum capital needed for futures depends on the types of contracts, as well as the contract costs. But the general recommendation is that a trader should start with at least €5,000.

Your individual risk preferences: If you day trade with riskier positions, you may need a higher amount of capital to overcome potential losing days. However, a conservative day trading would mean that you will open trades with lower risk.

Whether the day trading gains will be your primary income or if you want to supplement your regular income: If you plan to cover all of your expenses with the income generated from day trading, then you would need a substantial amount of capital to be able to make higher profits. If you plan to use the day trading as an opportunity to earn higher additional profits each month, experienced traders suggest that you start with around €5,000.

The leverage provided by your online trading platform: This is another aspect that should be considered before you decide how much money you need to start as a day trader. It’s generally suggested that day traders should limit their risk exposure to a single trade by limiting the amount traded by up to a maximum of 1% of their available capital. By doing that, you can avoid extreme losses.

Accordingly, if you deposit €1,000, you should limit your maximum loss per trade to €10. If you have €10,000, your maximum exposure per trade should be €100. It’s also a good idea to learn how stop-loss orders work.

The general rule is that you should invest only the amount of money you can afford to lose. Sometimes people make a crucial mistake when they start trading with capital, which can significantly impact their standard of living if they lose their money. Some people take up loans to use the money in their trading activities and, in the vast majority of cases, this is not a good idea.

Keep in mind that you can be a day trader with as little as €100. So, after you have accumulated adequate levels of savings, an emergency fund, and a well-defined retirement plan, you can dedicate a certain amount of money for your day trading activities.

How to start day trading

The decision to become a day trader should be based on something more than simply the personal desire to trade. Before you become a day trader, you should go through the following checklist:

  • Be aware of your skills and expertise, and augment them where necessary.
  • Define what you want to achieve and why you want to become a day trader.
  • Become acquainted with how day trading works and know the activities involved in trading.
  • Go through the different markets, assets and trading opportunities.
  • Start the learning process by practising, and also consider your trading strategies. You can open demo accounts where you can perform dummy trades without risking your money.
  • Select a broker and online trading platform. During your selection process, consider features such as fees, minimum deposit amount, withdrawal options, types of assets and securities available for trading and leverage.
  • Decide on the capital you have available for day trading and set up your money management.
  • Make a conservative first trade. Once you’ve spent a couple of months practising, start trading by making small, risk-averse trades.
  • Consider the possibility of using mirror trading or social trading.

Can you make money with day trading?

Can day trading be profitable? There is no straight answer. People who lost their capital will say that you can't make money. However, if you ask experienced traders who have taken their time to learn the trading skills and build a trading income gradually, they will say that day trading can provide an income.

Further reading

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