How to Determine a Trading Budget
Determining a day trading budget depends on various factors, not the least of which depends on whether you plan to trade part-time or if day trading is your full-time job. Day trading offers the potential for enormous profit along with significant risk. How much capital you need for your budget also depends on the type of trading you plan to do, such as stocks, options or futures.
One of the best ways to determine a trading budget is by using a simulator and “paper trade” as if you were using a budgeted amount. By trading the way you would in real life, you develop a strategy that works best for you and the discipline necessary for successful day trading. In day trading, the goal is to win at least half of your trades, losing 1 percent on your losses and gaining 1.5 to 2 percent on your successes. That ratio spells a decent day trading income.
Budgeting for Day Trading
When determining your trading budget, consider your entire net worth. If you don’t have sufficient assets to day trade, save up while you’re honing your paper trading skills. One idea: Open a separate bank account and have an automatic monthly deposit made from your paycheck. Make a strong point to live within your means, so you have the money available to start day trading.
Spare Time vs. Full-time
SureTrader allows you to get started in day trading with just a $500 minimum. This low minimum allows you to learn the ropes of trading without risking much capital. As your skills improve, you can up your trading budget.
If your spare time day trading is successful and you get the itch to make your living day trading, don’t make the move until you save the equivalent of two years’ worth of living expenses. That isn’t an easy accomplishment, but knowing you have the money to fall back on leaves you less stressed when you start full-time trading and more likely to remain consistent and disciplined in your work.
The One Percent Rule
One of day trading’s most basic axioms involves the 1 percent rule. That means you never risk more than 1 percent of your capital on any single trade, so you can never lose more than that amount per trade. That’s not to say if your account contains $25,000 that you don’t spend more than $250, or 1 percent, per trade. The 1 percent risk management tool pertains to total liquid net worth. Still, beginning traders should stick to the 1 percent rule as it pertains to their accounts as much as possible, with the use of leverage. Such leverage helps traders increase their buying power through the use of margin accounts.
Using Leverage in Margin Accounts
Day traders depend on the ability to use margin, or borrowed funds, to make trades. SureTrader offers 6:1 leverage for intraday trading. A trader with $10,000 in his account may then trade up to six times that amount, or $60,000. As long as the money you make on the security is higher than leverage interest payments, your profits become substantial.
The SureTrader Advantage
Our 6:1 leverage is just one reason for day traders to choose SureTrader. We also offer top charting and technical analysis, a state-of-the-art trading platform and lightning fast executions. Use our demo to practice and become comfortable and proficient with trading. It’s all part of the SureTrader advantage.
Disclaimer: This web site is for informational purposes only and does not constitute an offer or solicitation for brokerage services, investment advisory services, or other products or services in any jurisdiction where we are not authorized to conduct investment business or where such offer or solicitation would be contrary to the securities or local laws and regulations of that jurisdiction. System response, trade executions and account access may be affected by market conditions, system performance, quote delays and other factors. The risk of loss in electronic trading can be substantial. You should therefore consider whether such trading is suitable for you in light of your financial resources and circumstances. All trades are executed in a principal capacity, our clients do not have direct market access. All transactions are executed against Swiss America Securities, Ltd. in a principal capacity. Swiss America Securities, Ltd. may profit as your counter-party. You should consider this conflict of interest before placing any trades.