A Forex trader, especially a day trader, probably can begin with a trading account size as small as $1,000. I have seen ads suggesting that an Emini trader can make money by day trading only a $500 account. I think that is a mistake. A beginning trader will probably lose for at least a year or two, although he will likely have many streaks where he wins several days in a row. The reality is that most traders never become consistently profitable. Common reasons are insufficient funds, lack of reliable information about how to trade, and the inability to trade long enough to develop the skills needed to make money.
Many traders who stay with it long enough to become consistently profitable look at the loss as tuition in the school of hard knocks. They know that they are competing against professionals with degrees that prepared them to trade the markets, and they are trying to collect enough experience to make them competitive. It can be done, but it usually takes a long time to become very good.
Minimum trading account size
If a person is starting out with the Emini as he learns how to trade, he will probably need a trading account size of at least $10-25,000. Even if he begins with $100,000 and wants to trade the Emini, I think that he should only trade one contract until he is consistently profitable.
A less risky alternative is day trading big volume, cheap stocks and ETFs, like BAC or XLE. That is okay if your account has more than $25,000. But it is not allowed if you have a smaller account. FINRA is a regulatory agency that writes rules governing stock brokers. Their pattern day trader rule applies to stocks and ETFs, but not to futures, like the Emini. It limits a trader to 4 day-trades of stocks and ETFs within a 5-day period if the account has less than $25,000.
So how does someone learn to day trade if his account is smaller than $25,000? The Forex markets are a good choice, but there are usually only a few good day trades a day. A better choice is the Micro Emini.
Micro Emini is a great place to start
In 2019, the CME introduced a Micro Emini contract. It is 1/10th the size of the Emini and it is a great choice for someone starting out. It is important to understand that the goal of someone with a small account is not to get rich. It is to grow his trading account, and then think about getting rich.
Trading a Micro Emini contract will not make you rich. But it will give you the practice that you need to become successful. Try to become consistently profitable. Then, after several months begin to increase your position size.
Once you’ve grown your account to $10,000 – $25,000, then consider switching to the Emini. At that point, you can think about making enough money to begin to regularly take some profits out of your account and use it to improve the quality of your life. You do not need a big position or a lot of profit every day to feel successful. If a trader trades 2 Emini contracts and averages 5 points a day, that is over $100,000 a year.
Need small risk when starting out
Another reasonable alternative starting out with small trading account size, is to trade weekly SPY options. If a trader were to buy one ATM or slightly OTM put or call, the cost is usually under a dollar and often under 50 cents. Even if he lost, the loss would probably be less than 20 cents ($20, since each option is for 100 shares) if he managed his trade reasonably well.
This can keep the losses smaller while the trader learns how to trade. So, how can he get rich if he is looking for $10 – $20 profit per trade? He can’t, but that is not the goal. He is trying to hone his skills by trading real dollars in real markets until he is consistently profitable. He then can increase his volume and add other markets. At that point, his goal changes from learning to trade to earning a living.
Thank you for reading my How To Trade Price Action manual.
The next article is What should my trading position size be?.
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