Warrior Trading Blog

How Much Money do you Need to Day Trade?

How Much Money do you Need to Day Trade

What’s up everyone? All right, so in this episode, I’m going to answer that question that so many of you guys have been asking, how much money do you need in order to start day trading?

And what I’ve also done is I’ve put together a few case studies of my students who have taken small accounts and turned those small accounts into full day trading accounts, and the ability to live life completely on their own terms thanks to learning the strategies that I teach.

Case Study

So as you go through this video or as you watch the case studies in the link below, one of them is a podcast of a mentor session that one of my students is now teaching to beginner traders, who are at the very beginning of their journey.

So as you’re going through all of that, if you have questions, if you have comments, please leave them below. I personally respond to every question and comment posted on my channel, and as always, I hope you guys really enjoy this episode and please give me a thumbs up if you do. All right, let’s get into it.

How Much Money do you Need to Day Trade?

That is the most popular question the beginner traders will ask me. So what I’m going to do is I’m going to flip that around on you and I’m going to ask you two questions. Number one, what’s your daily goal? How much money in a perfect world are you wanting to make each day as a trader? All right, now let’s just say for the sake of argument, say a hundred bucks, all right? Extra hundred dollars a day would do the trick. All right?

Now the second question is how much money do you have to start day trading with? Now this is a big variable because some of you guys are going to say, well, I’ve only got 500 bucks, maybe 1,000. Some of you are kind of in the middle, maybe 3,000 to 5,000. And some of you guys, you’ve got bigger accounts, so you’re going to be maybe 10 to 25 or 25,000 and up. Now, why did I break it down into these categories?

Well February 27th, 2001, the PDT rule wasn’t active. And the PDT rule states that you must maintain a minimum account balance of $25,000 if you want to day trade more than three times a week. Now there’s ways around it and there’s ways you can work within the PDT rule.

So if you’ve already got 25,000 or more, then you don’t even really have to worry about that. You can start day trading right away, even if your goal is only $100 a day. But for those of you guys down here or in here, and this is where I was when I was getting started. You’ve got a $500,000 account size, but that’s how much you think you can put towards trading. Well, how are you going to work with this? Can only trade according to the PDT rule, three times a week.

That’s going to be really hard to grow a small account. To give you context. When I did my last small account challenge, I took $583 and turned it into over a hundred grand in 45 days and I traded an average of three times a day, three times each day, 15 times a week. So that means I was trading five times more than someone who is restricted by the PDT rule.

Now it doesn’t mean you couldn’t trade in a cash account and work within the PDT rule. You certainly can. But I grew my account five times faster. So how did I do that?

Broker Types

Well, you’ve got two types of brokers. You’ve got your onshore, domestic brokers, US brokers, and these are going to be brokers like TD Ameritrade. Good catch. Thank you. Good, nice compliment also. These are going to be brokers like TD Ameritrade, E-Trade, interactive brokers, and then you’ve got your offshore brokers and the offshore brokers are kind of interesting. Most of them are located in the Caribbean.

There’s a couple that are in Europe. They’ll accept US accounts, US traders can trade there. That is at least the case as of today. And what’s interesting is that because they are located offshore in the Caribbean, they’re not in the United States, they don’t enforce the PDT rule. So you can open a day trading account with 500 bucks.

Now let’s just say all things the same that you could trade with $500. Actually let’s go up to 1,000. So in terms of your daily goal, you’ve got your daily goal of a hundred a day. What I want to do is I want to multiply that by 10. $1,000. That is what I would say would be your minimum account size, if you’re over here in order to hit that $100 a day goal.

And there’s a reason for that. Over here, if you set up an account with $1,000, most of these brokers will give you a minimum of four times leverage. That means you can day trade with $4,000. Some of them will even give you up to six times. That means you could day trade with up to $6,000. So let’s just think about that for a second.

You’ve set up a $1,000 trading account. Your goal is $100 a day. That’s 10%. You’re trying to grow the account 10% each day. However you’re allowed to day trade with at least $4,000 okay. So $4,000. Let’s say you see a stock that’s priced at $3.50. $3.50, you buy 1,000 shares. How much money do you have in the trade? $3,500. $3,500 in the trade. Now 1,000 is your own money. The other 2,500 you’re basically borrowing from the broker.

They don’t make you pay interest or anything like that when you day trade, so you can go ahead and borrow that money. You take a day trade and then you close it. Yeah, of course, have to manage risk and be really mindful about where your max loss is. We talk about that a lot in risk management.

So right here you’ve got $3.50 by a 1,000 shares. Now the stock goes up to 3.60 by 1,000 shares, equals $3,600 and you have just made $100, just like that. Now if this goes up to 3.70, 3.80, you might end up making 3, 4, $500 with an account that has just a 1,000 bucks in it. What I always kind of say for beginner traders is that if you can get 10 cents a day out of the market, you’re doing what, 10 cents a day, 10 cents, and that’s per share, and that’s going to be on a stock like this, 3.50 to 3.60. That’s a 100 bucks with a 1,000 shares, and you can do it with a $1,000 balance.

Now, of course, if you can put 3,000 to $5,000 in, then you can multiply that by three, four or five, and now you’re looking at 300, 400, $500 a day. And literally I took $583 and turned it into over a $100,000 in 45 days, trading an average of three times a day. All right? So five times as much as you can trade over here.

Now if you’re on this side, you’ve got two options, all right? Option number one would be you trade with the cash account. So I know some of you guys are going to say, hey Ross, why go over here and trade off shore when you can just trade in the US for the cash account and then you don’t need to maintain the $25,000 minimum balance. Hey, problem solved, right? Not so fast. Here’s the problem with the cash account. Cash account means that when you take a trade, so let’s just say for instance, you have $1,000 cash account, all right? You’ve got a cash account, all you can do is trade with that $1,000. What you don’t get is the times four. You don’t get the leverage. You don’t get the margin and the buying power. So all you have is the $1,000.

Now if you take a trade, obviously the stock at $3.50, you’re not going to be able to buy 1,000 shares. You’re going to be able to buy 250 or something like that. You’re obviously going to be really restricted. Now with 250 shares, you get in at 3.50, it’s got to go all the way up to 3.90 in order for you to make just about $100. That’s 40 cents per share. That’s a 10% move on that stock.

On the other hand over here, this trader was able to make the same $100 on not a 10% move, but like a 2% move because they’re using leverage. Now, certainly you can trade here, you can trade a cash account. But the other problem is not only do you only have $1,000, but every time you take a day trade, you’ve got to wait two days for that trade to settle. It’s kind of like waiting for a check to clear the bank. You’ve got to wait two days before you can trade with that money again. So what’s really the difference between trading the $1,000 here or the $1,000 here with a margin account?

All right, so on this side, we’ve got the margin account. Now with the margin account, you put in $1,000 okay? And most brokers will give you at least two times leverage on that money. Two times leverage. So you’ve got now $2,000, all right? Not bad. The only thing is you can only trade three times a week until you cross that $25,000 mark. Now you’ve got your leverage, so you’ll be able to grow the account a little faster. And if a stock is really, really hot, we have one of those days where stock is at $2 and then goes up to 2.50, $3, 4, 5, 6, 7. You could trade that stock three times in one day and you might be able to make 500, 1,000 or even $2,000 in one day using up all three of your trades, but then you can’t try it again for another five days.

So my two cents is that if I have a small account and you guys know, obviously I do small account challenges, the fastest way to grow the account is right here. I’ve got leverage and I’m unrestricted in terms of the number of day trades I can take. I can take as many as I want. Now, if I really want to challenge myself, if I want to stick with the US broker, TD Ameritrade, E-Trade, I can do that too. And that’s a little bit of a different challenge. It’s going to be a little slower.

I’m going to have to really focus on eight quality setups, but it can be done. Now, of course, if you’re one of those traders that has $25,000 plus, making $100 a day, well you can do all of this with that account. The only thing that I would say is that since you really only need about 1,000 or $2,000 to make $100 a day, the extra 24 grand, it’s not really doing much.

So if you put that $24,000 into almost any ETF or you put into a dividend paying stock, then you could earn money on your money while actively day trading with the small amount of money that you really need to trade.

All right, so I hope this helps you guys understand how much you really need in order to start day trading. I would say it really comes back to your daily goal. What’s your daily goal? If it’s 50 a day, if it’s 100 a day, if it’s 200 a day, multiply that by 10 and that’ll get you trading right over here, doing really well. Now if you’re daily goal is $100 a day and you’re going to be on the margin side over here, under 25,000, well you’re going to have to move that up a little bit.

I would say if your goal here is 100 a day and you’re planning on trading with the US account and you’re going to be on this path right here, you’re probably going to need closer. I would probably take this down to realistically more like times 50. You’re really probably going to need closer to 4,000 or $5,000 in order to make that $100 a day consistently. And ultimately it’s going to be a couple of trades a week where you total $500 a week, so it’s going to take a little bit more work.

Final Thoughts

Can you do it? Absolutely. Are you up to the challenge? I don’t know. You tell me. All right, questions, comments, leave them down below.

Want to learn more about trading? Click the link to join us in our next free online class where I will go over my three favorite strategies!

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