Let’s first start by talking about the Pattern Day Trader (PDT) rule and how it will effect your day trading. Every US-based broker has to enforce the PDT rule:
A pattern day trader is defined in Exchange Rule 431 as any customer who executes 4 or more round-trip day trades within any 5 successive business days
It’s a continual rolling list of 5 business days, so if during any 5 day period you execute a total of 4 day trades, you are a Pattern Day Trader. Why is this important? Because a designated as a Pattern Day Trader can only execute more trades if he has $25,000 in his account. Thus, anybody using a US-based broker should start out with at least $25,000-$30,000 if they want to take up day trading.
That said, if you have less than $25,000, you can still make 3 day trades during a 5 day span. While this may seem like too little, it can serve as a beneficial handcuff for a new trader who probably benefits from trading less and watching more. Taking this into account, you can try to start day trading with around $10,000, which when you factor in 3 to 1 margin, will give you $30,000 of buying power.
Using $10,000 in equity ($30,000 buying power with margin), a trade can easily purchase 1000 shares of a $25.00 stock, and if that stock movies 25 cents in your direction, you’ll end up profiting $250. You wont be Gordon Gekko, but still pretty good for the average joe.
Let’s take a look at another scenario and say you have $200,000 in your day trading account. Adding margin to that will give you $600,000 in total buying power. That is an awful lot of money for a new trader to learn with and it may lead to taking some crazy trades on, especially if the trader already had some earlier losses, and is not in the best frame of mind.
So as you can see, the money needed to become a day trader can range from anywhere from $10,000 to whatever.
A great starting point, however, I’d say that $30,000 ($90,000 buying power with margin) would be the best. This amount will give you the most amount of freedom, provide a significant daily profit, and also keep you from placing trades which are too big for a newbie.
