Capital Requirements for Day Trading - dummies

Capital Requirements for Day Trading

You don’t necessarily need a lot of money to begin day trading, but you do need a lot of money to buy certain kinds of securities.

Stocks generally trade in round lots, which are orders of at least 100 shares. If you want to buy a stock worth $40 per share, you need $4,000 in your account. Your broker will probably let you borrow half of that money, but you still need to come up with the other $2,000.

Options and futures trade by contract; one contract represents some unit of the underlying security. For example, in the options market, one contract is good for 100 shares of the stock. These contracts also trade in round lots of 100 contracts per order.

No one will stop you from buying a smaller amount than the usual round lot in any given security, but you’ll probably pay a high commission and get worse execution for your order. Because the returns on each trade tend to be small anyway, don’t take up day trading until you have enough money to trade your target asset effectively.

Bonds do not trade in fractional amounts; they trade on a per-bond basis, and each bond has a face value of $1,000. Some trade for more or less than that, depending on how the bond’s interest rate differs from the market rate, but the $1,000 figure is a good number to keep in mind. Many dealers have a minimum order of 10 bonds, though, so a minimum order would be $10,000.