Day Trading
As more and more people are looking for ways to reach a better financial future and set their own rules, day trading is becoming a popular investment option. This is a short-term strategy that refers to opening and closing all your trades intraday.
Day trading seems attractive as it allows you to get started with just a small amount on hand. However, many people mistakenly believe that this investment option allows everyone to make big money fast without any special skills or knowledge. This is the wrong idea. Any successful day trading strategy comes with years of thorough research. Let’s find out how to start day trading with little money and what you will need to succeed.
What Is Day Trading?
Day trading is a trading strategy that provides for buying and selling securities within one day. Day trading is based on the assumption of where the price of a financial instrument is moving within a short time frame. All positions are closed before the end of the trading call, so day traders benefit from the overnight fluctuation of stock market prices.
Day trading strategies differ from those used by long-term traders who typically use buy-and-hold strategies. Day traders typically trade stocks, currencies, indices, commodities, and cryptocurrencies.
Is Day Trading Risky?
Day trading can be risky for both a trader and a brokerage. Sometimes day traders lose money fast when a stock price or market conditions move in the wrong direction. This happens because of the strategy’s short time frames. That is why your decision to start day trade should always come with an effective risk management strategy. Also, you should only use the amounts that you can afford to lose, especially if you’re a beginner.
“In fact, losses are the only guarantee when it comes to day trading,” says Kayla Harris, the financial writer and personal finance expert of 15M Finance. “Stocks and other securities can fluctuate significantly within minutes or even seconds. If you don’t want to end up losing money, you need to fully understand what factors can affect the price and how you should act depending on the current situation. And even doing this can’t completely eliminate the risk.”
At the same time, day trading allows you to start small. You don’t need to trade significant amounts. You can take your chance even with $100 or $200 in your pocket, provided that your broker allows it, and your strategy is carefully calculated. Thus, you can use the small money you already have.
However, if you already have some experience and know what to do, a higher amount can help you earn more. This way, additional financing can help you start day trading with little money. You can consider a bank loan if you’re in good standing or apply for 2500 loans for bad credit to access financing with some credit issues. This way, you can turn the amount borrowed into good debt that will help you benefit over some time. Just make sure to choose the right day trading stocks and have a thorough plan. Although you won’t make thousands of dollars right away when trading small amounts, it can be a great starting point.
What Do You Need to Become a Pattern Day Trader?
Pattern day traders are people who make money on day trading on a regular basis. Simply put, they are individuals who consider day trading a permanent full-time job. Technically, you need to make 4 day trades within a 5-day business week to be considered a pattern day trader. However, it also requires you to maintain minimum equity of $25,000 in your margin account. Thus, you can’t become a pattern day trader with little money.
However, you don’t need to be one to improve your financial health. When it comes to day trading, your minimum equity and number of trades are not the factors that measure your potential success. Speaking about personal qualities, you need to be diligent, focused, objective, and unemotional when it comes to work. Additionally, it’s recommended to:
- Learn day trading terminology and technical analysis;
- Have a profitable strategy;
- Gain hours of practice in the day trading simulator;
- Choose suitable day trading tools (online brokers, scanners, charting platforms).
How to Day Trade with Little Money – Useful Tips
Have just a few hundred dollars and want to become a day trader? It’s possible! Here are some tips on how to start trading safely and without much capital.
Knowledge Is The Key
You can only succeed in day trading if you take it seriously. Day traders need to do thorough research and have a clear understanding of what is going on in the stock market they’re going to trade in. Start with studying technical and fundamental analysis. Also, learn about popular day trading strategies, such as range trading, spread trading, fading, and momentum trading. Additionally, you need to figure out how to manage risk so as not to lose money.
Furthermore, it’s critical to know what variables may influence the price of the stocks you plan to trade. This requires you to know the market, and it may take some time before you understand what to pay attention to. Do your research and speak with other day traders to learn from them. Pay attention to what’s going on in the companies you work with, learn about their stocks, and read related news.
Choose a Security You Want to Trade
Your success in day trading is greatly influenced by the financial instruments you buy and sell. Make sure the securities you choose fit several criteria, including volatility and liquidity.
Liquidity refers to the ability to buy and sell a security quickly and easily without significant price changes. Many traders are interested in liquid securities because they are less risky. As a result, it has tight bid-ask spreads and high trading volumes. Volatility refers to the magnitude and frequency of the security’s price movements. Advanced day traders like volatile securities as they provide opportunities for quick profits.
Additionally, pay attention to the cost of security. Selecting stocks with share prices between $10 and $100 is preferable. This price range is considered optimal since you don’t risk much money while purchasing enough shares to provide a healthy return. Avoid low-cost securities as they typically carry more risks. Low liquidity and higher volatility are their main characteristics.
Choose a Strategy
Your trading strategy will help you decide when and how you enter and exit trades and how much money you will put into each trade. Additionally, it determines the way you manage risks. There are several techniques accessible, but the key is to pick the one that will increase your chances of profitable trading. For example, you may monitor a stock’s price and use a swing trading technique to purchase it when it is at its lowest and sell it when it is at its highest.
It’s hard to say which day trading strategy is better. It depends on many factors, including your expertise, capital, and the security you trade. Many traders also mix strategies or use just certain instruments and features.
Thus, get ready to learn much. You can visit traders’ chat rooms, look into research, or watch free videos about popular trading strategies. If you need help, consider taking an online trading course or finding a patron among experts.
Find The Right Stock Broker
Trading is a process that takes place on a certain trading platform. Stock trading platforms are middlemen between you and the market. Their specific rules and conditions can make a significant difference in your day trading success. Thus, it’s important to choose the right one before you start. Here are some factors to consider when choosing a stock broker:
- Fees and commissions. When you want to start day trade with little money, choose a broker with low fees to minimize your costs. Some brokers offer flat-rate commissions, while others charge a percentage of a trade’s value. Compare different providers and choose the one with the most competitive fees;
- Securities that are available on the platform. Some brokers specialize in specific markets, such as the Foreign exchange market (or Forex market), while others offer a broader range of securities. Decide on what financial instruments you want to trade and choose a platform in accordance with them;
- Level of customer support. When you’re a beginner, you need to be ready for unexpected situations to arise at any moment. This way, it’s better to choose a broker that has a responsive customer support team that is available 24/7;
- Broker’s regulatory status and reputation. A reputable broker should be licensed and regulated by a recognized financial authority, such as the Securities and Exchange Commission (SEC).
Use a Demo Day Trading Account
You don’t need to risk real money right away. First, you can get a knack for it in a day trading simulator. When you use a demo account, you can buy and sell stocks in real time while staying safe. This way, you will be able to learn how it works in practice without any risk. This is also a great way to test your strategy and find out whether it suits your situation before you put real money on the line.
Set Limits and Stick to Them
When you risk real money, be cautious and don’t trade high amounts at the very beginning. You should start small to reduce the risk of losing the funds. First, you need to calculate how much capital you can afford to lose. Then, set the realistic limit that is up to the determined amount. As unforeseen events are always unpredictable, you should keep in mind that there’s no strategy that can protect you from them.
Shania Brenson, the CEO of 15M Finance, believes that planning your trading budget is a must-do for a day trader. “No risk, no gain, but you should take risks wisely,” he says. “As your final goal is profit, not money loss, you should always stay cool and stick to a plan. If you find it difficult to determine a realistic amount, turn to other successful traders’ experiences. Most of them don’t risk more than 2% of their account balance per trade.”
Avoid Penny Stocks
When your capital is limited, it may seem a good idea to start with low-price deals. However, it’s not an option for day trading. Penny stocks are stocks traded under $10. They are often illiquid and are only tradable over-the-counter. You shouldn’t count on breaking the bank with them.
Keep Your Regular Job
Do not rush to quit your regular job and get up to your ears in the world of investment and trading. You need to be realistic about how long it might take you to figure out how it works and achieve sustainable success. Unfortunately, your broker doesn’t care that you have to pay bills. So start by making day trading your hobby or a regular activity you do to make more money online. After you start to succeed and the profit becomes regular and livable, you can think about making day trading your full-time job.
Where Can You Learn to Day Trade?
If you want to become a day trader, you should be ready to work hard. Also, you need to be patient. It may take you several years to learn to day trade and reach sustainable success. However, if you are passionate, persistent, and motivated, you can reach heights. Here are some options for those who want to learn faster but don’t know where to start:
- Online courses. Many platforms launch free or paid online courses led by experienced traders. You can join the one with a suitable program and duration and learn how to trade with like-minded people. Check out platforms like Udemy or Warrior Trading to find a suitable option;
- Trading academies. If you want to join a comprehensive course or training program that covers various aspects of trading, pay attention to programs offered by the Trading College and the Academy of Financial Trading;
- Mentor programs. If you’re looking for one-on-one guidance, this option may suit you best. A mentor can teach you the most advanced trading techniques, answer your questions, provide support and ongoing feedback, and help you succeed. Some popular mentorship programs are the Timothy Sykes Millionaire Challenge and the Warrior Trading Inner Circle.
Experts’ details
Shania Brenson is a professional personal finance writer and expert with 15+ years of experience in finance under her belt. Her years of study and the extensive knowledge in lending and investing helped her become an outstanding author who is respected and listened to.
Kayla Harris is a personal finance expert with passion for finance writing and investment analysis. Kayla is known for being an expert in a broad spectrum of finance-related topics. Her extensive knowledge and ability to identify the main points of various aspects make her an expert you can trust.
