E-mini Trading Basics
So You Want To Day-Trade for a Living-Part Three: Money Needed
By Jared Putnam
Jan 23, 2008 - 5:14:22 PM

  As we have come to see, there are numerous skills needed to day-trade for a living. Proficiency in such areas as entries, position management, exits and self-discipline will profoundly affect our level of efficacy. While advancement in these areas impacts our profitability, without a money deposit, no trades will take place since access to any market will not be granted.
  Just how much money is needed? In this portion of, “So You Want to Day-Trade for a Living”, typical account minimums and maximum risk on a per-trade basis will be discussed. If you are new to trading note that preserving your capital, securing that it flourishes, is paramount. No money, no access to trading. Remembering this makes trading within your means trump the urgency you feel or the seeming sure-win opportunity you have found.

Part III: Money needed

  1) For futures many brokerages require $5,000 to open an account. Regardless of the minimum to open, margin must be met. The lowest e-mini S&P margin claim for day-traders I have seen is $500. 2) To be a day-trader with an equities firm, a minimum deposit of $25,000 is typical. 3) Access is by far easiest in the retail foreign exchange markets since deposits of as little as $250 will enable entry. However, the extreme leverage used to facilitate these accounts means that even a small move, relative to the market’s volatility, can blow-out your account. While greater regulatory oversight seems to be imminent, at this time aspects of these markets are significantly less standardized than futures and equities. Please note on your sheet of paper which market you intend to trade and the minimum needed. Now note the dollar amount of risk capital you have available.
  One way to be sure your account is preserved is to set a limit for the maximum dollar amount you will risk on any one trade. Professional fund managers rarely risk greater than 2% and routinely put 0.5-1% of the money they are in charge of at risk. Perhaps you will allow a greater percentage. If so, consider using the following formula. It has been designed to allow you to earn the most amount of money possible while keeping an empty account at “arm’s length”. In terms of dollars, add up the difference between entry and exit and multiply that number by 20. Next, add to that the commission costs. If the final product is less than your account’s value, the risk amount is acceptable. However, if the total is greater than what is in your account, the risk is too much. In such a case, reduce your risk by modifying your entry or stop. If neither seems advisable, implement the ultimate risk-reducer: pass on the trade!
  Well, it is now time for you to present your closing arguments. Pull together the answers from your review of time, skills and money needed to day-trade for a living. If you are deficient in any area, determine what it will take to make up the difference. Remember, becoming a master trader is a process that requires many small steps.
  If you meet or exceed these recommended minimums, congratulations! Your positive answers show that your current level of trading time, skill, and money available makes success in trading plausible for you. If you motion to proceed, remember to be positive and realistic. Obey the rules of sound trading and obtain expert guidance when needed. Since the judge in this case is impartial, know the market will not single you out. In trading, unlike any judicial system, whether the result is outstanding or dismal it is always because of you.