The amount of capital technically necessary to begin day trading is a computer, an Internet connection and a minimum deposit with an online stock broker. However, day trading requires a significant investment if you want to see large gains. Borrowing from brokers and lenders is possible but cautious day traders begin with small amounts of capital that they can afford to lose. The Securities and Exchange Commission warns that most traders suffer severe losses in the beginning, so caution may prevent you from going into debt.
Day traders generally need an amount of capital larger than the profits they intend to generate. If you have $20,000 in capital but you hope to make $50,000, you're expecting a 250 percent return on your investment. While these returns aren't impossible when day trading, they might be unrealistic for a beginner. Because day trading requires extensive knowledge, long hours and intense concentration, beginners should start with a small amount of risk capital and increase the capital as their skill grows.
A computer and a fast Internet connection are the only one-time start-up costs for day trading. However, day traders must sign up with a brokerage firm in order to buy and sell stock. In addition to membership fees, most brokers charge commission fees for each transaction. Beginning day traders must account for these fees when gathering enough risk capital to begin trading.
Some brokerage firms offer borrowing programs that allow day traders to purchase up to 50 percent of a stock's price using money loaned from the broker. This process, called buying on margin, increases available capital but magnifies losses. In addition, some day traders borrow money by other means. While these options increase your ability to generate profit, they may cripple you with debt if you borrow too much and lose most of the money.
Day trading is neither illegal nor unethical, according to the Securities and Exchange Commission. But the process resembles a game more than an investment strategy. Day traders rarely hold onto stocks overnight because of the risk of morning value drops. Searching for upward momentum in stock prices and guessing when to abandon them for a profit results in frequent losses for an inexperienced trader. Consider the quality as well as the quantity of your capital, and only use money that you can afford to lose.
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