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Strategies & Market Trends : DAYTRADING Fundamentals
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To: Eric P who wrote ()6/6/1999 7:58:00 AM
From: Eric P  Read Replies (1) of 18137
 
How much $$$ do I need to Daytrade???

Most brokers have account size minimums in the range of $5k to open an account. However, this size is grossly inadequate (IMO) for a daytrading account. To put things in perspective, a $5k daytrading account would:

1) Exhaust 10% of its capital every day simply with commissions, assuming ~10 trades/day at $25/ticket.

2) Could only afford to buy 300 shares of DELL (at $33/sh), even by fully margining the account.

3) Would lose money with a 300 sh DELL trade, even if selling the stock at +1/8 point above the purchase price, due to the effect of commissions.

Daytrading is an extremely difficult form of investing. It is widely estimated that 90% of daytraders lose money. However, starting with an account size as small as $5k would make profitability virtually impossible.

What is an adequate account size for daytrading??? I believe that a reasonable minimum size for a daytrading account is about $50k. With this account size:

1) The commissions on 10 trades/day only amount to 1% of account size.

2) The effect of commissions costs on each trade are diluted by a much larger number of shares. Assuming 1000 shares, the trader can be profitable by selling a stock as little as 1/16 point above their purchase price.

3) The trader is adequately capitalized and able to take a $1-2k loss without devastating their account. Note: It is important not to get too comfortable with continued losses, however. If this happens, you may want to revert back to paper trading for a while.

While different traders may disagree on this point, I believe that $50k is about the right minimum size for a daytrading account. Anything less can reduce your likelihood of success... and the odds are not great to begin with.
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