Minimum required capital

S

scot.mcpherson

Now hold on, I know this is a often hashed question, so please don't get mad. I have another spin on this question that I haven't seen addressed.

What is the minimum required capital to successfully daytrade as a career/living when one brings FINRA Rule 2520 and NYSE Rule 431 into consideration?

I have heard people here talking about $1000 and $2000 and being able to do it. I can't see that as a possibility considering that accounts below $2000 are required to be cash only and subject to rule 431, trade day+3 days for purchase settlement. Therefore you could only accomplish one purchase every 3 to 4 days.

If you have a margin account (greater than $2000 cash balance, not including funds lost to trades), you have only so much purchasing power. i.e. you can only make so many trades before your account is subject to a day trading equity call which you can't cover UNTIL all your trades have settled which takes 3 days.

So forget growth potential and all that if you could day trade with $1000 because truth is, you simply can't daytrade with $1000, you aren't allowed, and with $2000, you are allowed, but severely limited to the number of transactions you can execute while awaiting settlement.

So my question is, what is realistically the minimum required to make or start a career in trading when the above rules are applied to the equation? Or maybe the question really should be...."How do people with claims that they can be a career trader with little to no money reconcile the fact that the law prevents one from doing so?"

I realize this only applies to people trading in the USA, so those across the pond or else, please don't bother to answer, the question doesn't really apply to you.

Thanks kindly for the patience with this oft repeated theme, but I had to hear what the responses would be with the inclusion of the regulations.
 
One can trade options in a small account but it's still not really very realistic with only 1-2 grand because one serious draw down can really hurt you.

Because of the Pattern DayTrader rules, 25 grand is more realistic. I think that the margin limit for PDT may have been raised a bit (not sure) but it was at 4:1 intraday subject to standard overnight Reg D margin of 50%. That means that during the day you could carry up to 100g of stock with your 25g of capital, with no limit to how many times you turn it over intraday.

Do a web search on "Pattern Day Trader" and you'll get more specific info, Here's a starting point:

http://en.wikipedia.org/wiki/Pattern_day_trader
 
Quote from scot.mcpherson:

Now hold on, I know this is a often hashed question, so please don't get mad. I have another spin on this question that I haven't seen addressed.

What is the minimum required capital to successfully daytrade as a career/living when one brings FINRA Rule 2520 and NYSE Rule 431 into consideration?

I have heard people here talking about $1000 and $2000 and being able to do it. I can't see that as a possibility considering that accounts below $2000 are required to be cash only and subject to rule 431, trade day+3 days for purchase settlement. Therefore you could only accomplish one purchase every 3 to 4 days.

If you have a margin account (greater than $2000 cash balance, not including funds lost to trades), you have only so much purchasing power. i.e. you can only make so many trades before your account is subject to a day trading equity call which you can't cover UNTIL all your trades have settled which takes 3 days.

So forget growth potential and all that if you could day trade with $1000 because truth is, you simply can't daytrade with $1000, you aren't allowed, and with $2000, you are allowed, but severely limited to the number of transactions you can execute while awaiting settlement.

So my question is, what is realistically the minimum required to make or start a career in trading when the above rules are applied to the equation? Or maybe the question really should be...."How do people with claims that they can be a career trader with little to no money reconcile the fact that the law prevents one from doing so?"

I realize this only applies to people trading in the USA, so those across the pond or else, please don't bother to answer, the question doesn't really apply to you.

Thanks kindly for the patience with this oft repeated theme, but I had to hear what the responses would be with the inclusion of the regulations.
More...


$250,000.00 minimum. As a working capital. If you plan to trade equities. Not for regular living expenses. May be monthly brokerage fees. Strictly a trading capital. Anything less and you are doom to failure. Under funding is the cause of high failures in daytrading. Just my humble opinion.
 
Quote from scot.mcpherson:

Now hold on, I know this is a often hashed question, so please don't get mad. I have another spin on this question that I haven't seen addressed.

What is the minimum required capital to successfully daytrade as a career/living when one brings FINRA Rule 2520 and NYSE Rule 431 into consideration?

I have heard people here talking about $1000 and $2000 and being able to do it. I can't see that as a possibility considering that accounts below $2000 are required to be cash only and subject to rule 431, trade day+3 days for purchase settlement. Therefore you could only accomplish one purchase every 3 to 4 days.

If you have a margin account (greater than $2000 cash balance, not including funds lost to trades), you have only so much purchasing power. i.e. you can only make so many trades before your account is subject to a day trading equity call which you can't cover UNTIL all your trades have settled which takes 3 days.

So forget growth potential and all that if you could day trade with $1000 because truth is, you simply can't daytrade with $1000, you aren't allowed, and with $2000, you are allowed, but severely limited to the number of transactions you can execute while awaiting settlement.

So my question is, what is realistically the minimum required to make or start a career in trading when the above rules are applied to the equation? Or maybe the question really should be...."How do people with claims that they can be a career trader with little to no money reconcile the fact that the law prevents one from doing so?"

I realize this only applies to people trading in the USA, so those across the pond or else, please don't bother to answer, the question doesn't really apply to you.

Thanks kindly for the patience with this oft repeated theme, but I had to hear what the responses would be with the inclusion of the regulations.
More...

Let's say you are good and immediately profitable, and make let's say 10 or 15% a week, can you live on 100~300 USD a week?

Budget in some living expensive, let's say 18 to 24 months, and you are thinking closer to 40k + capital needed to trade, I say $50 to 60k realistically.

Quote from caementarius:

Also consider that your equity value can resemble a random walk. If you're good, it will have a positive drift.
More...

Hi CAE,

I would use the term "when you are good", people (including myself) really underestimate how long it would take a person to trade with confidence and win consistantly.
 
Quote from AIMHIGH520:

$250,000.00 minimum. Anything less and you are doom to failure.
More...

That's just silly. The amount is different for everyone, and many traders need nowhere near that amount.
 
Quote from scot.mcpherson:

[What is the minimum required capital to successfully daytrade as a career/living when one brings FINRA Rule 2520 and NYSE Rule 431 into consideration?

I have heard people here talking about $1000 and $2000 and being able to do it. I can't see that as a possibility considering that accounts below $2000 are required to be cash only and subject to rule 431, trade day+3 days for purchase settlement. Therefore you could only accomplish one purchase every 3 to 4 days.
More...
My previous reply was inadequate because it was geared toward how much capital you need in order to be able to day trade.

To daytrade as a career/living with no other source of income (pension, social security, mommy (g), you'll need a heckuva lot more thatn 1-2 k if you expect to live off the proceeds... and that number will vary because peoiple have different trading abilities as well as different lifestyle requirements.

With 100k, are you that unique trader who can consistently generate 25% a year? After taxes, can you live on 20k a year? Or perhaps you're more mundane and you can just approximate the long term return of the market (ignoring the silly little Black Swan of the past year) and can generate 10% a year consistently. If you need 40k to live, you'll need 500k of capital.

Pick your own number but it's going to be an awful lot more than 1-2 k.
 
Quote from spindr0:

Pick your own number but it's going to be an awful lot more than 1-2 k.
More...

I was expecting a higher number for annual return for a full time trader (not a buy-hold investor or fund manager).

What kind of annual % return a typical disciplined trader makes?

Thanks,
 
Quote from AIMHIGH520:

$250,000.00 minimum. Anything less and you are doom to failure.

Quote from Mr J:

That's just silly. The amount is different for everyone, and many traders need nowhere near that amount.
More...

Maybe so, but it's the best answer I've heard thus far.

The amount of capital you need is a factor of 1) how much you target to make and 2) your skill level - ie, leverage.

The new guy, assuming he has an edge and all the requisite skills, probably needs double what he wants to make - plus money to carry him/her for at least the first year or two assuming no better than breakeven results.

What? That's too much money you say? Well, only if you want to be successful does this apply. Otherwise, $5k and a bible work fine.

This game is about return on capital. Some argue this point endlessly. But, at the end of the day, the only common quantification you can make is a return on capital comparison. After that, numbers can be skewed up or down based on leverage used.
 
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