Determining how much money you need to start with will determine your returns from day trading, and how much you can expect to lose every day. Trading comes with risks and you need to take into account that you always need to leave a buffer to tolerate any loss of money.

There are several determinants that you need to factor in to calculate your day trading capital. They include:

• Minimum amount requirement
• Risk level
• Using leverage
• Starting capital
• Fees
• How much to expect in return

Minimum amount requirement

To trade US stocks using a margin account, you need to have a minimum of $25,000 in your balance and execute a minimum of 4-day trades in a week. This way, you can earn the status of “day trader”.

However, it would be a good idea to maintain at least $30,000 to be able to tolerate some losses, without facing any restrictions before you can trade again.

If you incur some losses and your balance drops below $25,000, you will not be allowed to day-trade, and in this case, you will need to fund your account to maintain the minimum amount for day-trading stocks of US corporations.

On the other hand, if you are intending to trade stocks outside the US, you might not have any requirements to start day trading, so you can start using any amount. Keeping a minimum amount of $10,000 to $15,000 in your account is generally recommended to generate some noticeable gains from day trading because on some trading days you might not see more than a 5% price change.

Risk level

Day trading stocks can become intense, there is a huge number of stocks being bought and sold every second, and you need to minimize your risk to make the most out of day trading. Usually, day traders risk less than 1% of their trading capital, or, you need to expect to lose less than 1% of the amount that you use for investing.

For example, if you are trading according to the US stock trading requirement, you can expect to lose $250 (25,000 * 1%). Therefore, you can use stop-loss and take-profit orders in each trade to fit your risk expectations.

Let’s say, Starbucks's stock is worth $50, and you set your stop-loss limit at $49.70. Your day trading risk, in this case, is the difference between the price that you pay for a single stock and the stop-loss price limit (50.00 - 49.70 = 0.30 per stock). If you are trading with 1,000 shares, then your risk is (1000 x 0.30 = $300) 

In order to make money in day trading, a trader relies on high market volatility, only then, a trader can see enough of a return to make day trading profitable.

This makes day trading risky if the market is not volatile enough, or if the market started some interesting movement towards the end of the day, and you need to decide whether to leave the market without any gains or remain in the market till the next day.

Using leverage

Trading with a margin is always a double-edged sword. This way, you can access higher-value market positions, and you can use a bigger contract size which may amplify your gains. However, it can just as easily amplify your losses.

It might be tempting to use huge leverage in markets with low volatility so that you can secure some returns. However, it is possible for the market to decline, and using high leverage you might see your market position losing quickly.

Therefore, even if you are using leverage to gain in day trading stocks, you need to keep 1% as your risk limit and use a stop-loss order to avoid exaggerated losses.

Starting capital

Determining the starting capital that you are going to invest when day trading stocks is very important, since your risk and returns are expressed in terms of percentages, your gains and losses are highly reliant on your starting capital.

Therefore, let’s take a look at how you can calculate your capital to start day trading stocks. If you are going to day trade US stocks while living in the US, you are required to maintain at least $25,000 in your account, but if you are only trading other stocks you do not have to maintain any minimum amount.

Let’s say you are trading stocks of Starbucks, each stock is worth $50, and you set your stop-loss price at $49.70. In this case, you are risking $0.30 per stock ($50.0 - $49.7 = $0.30).

It is mostly recommended that you risk 1% or less from your total trading balance, and $0.30 is well below the 1% of $50. However, if you are buying 1,000 shares, your risk is $300 (1000 x $0.30). To find out the stock's day trading capital that you require, divide $300 by 0.01 = $30,000.

The higher risk you are willing to take, the higher the capital you will require. Say that you will tolerate a $500 risk with the same stocks while keeping the same risk level at 1%. In the case, 500/0.01 = $50,000.

Fees

Looking after the fees that you might be charged for day trading is important. Unlike the position stock trading strategy where you open a position and keep it for a longer term, in day trading you are executing several trades in one day, for several days, which requires considering the following fees:

Brokers fees

Always check the broker’s fee structure. Some brokers charge a fixed fee for every time you enter or leave the market, while others incorporate the fees in the spread, and it will depend on the buying and selling prices you get charged.

If the trader imposes a flat fee for direct market access, these fees can cost your day trading balance dearly, and you will lose a considerable amount of money.

Some brokers can set a fixed fee of $15 for each side of the trade, which means that every time you enter or exit the market, you are going to pay this fixed fee. 

Now consider that in day trading stocks, you are going to execute several trades in one day, and you may enter and leave the market several times in a single day. If you get charged $15 every time, you might end up paying $100 by the end of the day as broker fees, so there is no point in day trading if you are limited on budget.

Withdrawal fees

Another type of fee for day trading is when you cash out your money from your trading account. In day trading you are making money on a daily basis, and you might need to withdraw your gains every day.

Therefore, if you are intending to take your gains out from your trading account, you need to check what fees your broker will charge you. Some brokers may charge a fixed withdrawal fee or a percentage of the withdrawn amount. In addition, some brokers charge different fees according to the withdrawal method.

Knowing the way your broker charges withdrawal fees when day trading stock is important, so you do not go into a negative trading balance just because you are withdrawing your gains.

How much to expect in return

It is common for day traders to expect a 1.5% return on each trade they make when day trading stocks. This way if you are risking 1% of your trading balance to make 1.5% returns, you are gaining a net of 0.5% on each trade at least, or that will be your target.

To decide if day trading in stocks is good for you, you need to set your reward-to-risk ratio, which indicates how much you are willing to gain compared to the amount you are willing to lose. Many day traders aim to maintain a 1.5 to 1 ratio, which means that your are willing to lose $1 while looking to make $1.5.

This way, if you are trading with $50 and your risk target is $0.30, say your reward-to-risk ratio is 1.5 to 1. It means that you are losing $0.30 and gaining $0.45, you are making a net $0.15, and your $50 now becomes $50.15.

This is one gain from a single trade, for a single stock, in a single trading session. But if you are executing multiple trades in one day, and using more than 1 stock, you can expect amplified gains.

Another target for day traders in stocks is the winning rate. Most day traders set their daily winning ratio to 50%, which means that if 50% or more of your trades in one day are achieving the reward-to-risk ratio, your trading session is successful.

Now that you have grasped the fundamentals of how much to invest when day trading, how much you might lose or gain, and where your money goes when you buy stocks, you can start your first trading day using the following tips:

Start small

As in everything you start, beginning with a small budget in day trading is recommended because this pattern can be different from other trading strategies, especially if you are a buy-and-hold type of investor. 

You should not expect significant returns, and may even lose motivation when you start with a limited balance, but you are also not losing much and what you are gaining is the experience of executing several trades in one day. After you feel comfortable with it, you can bump up your capital.

Similarly, you can try day trading using a demo account, which helps you learn how to manage several trades similarly to how it is done in a real day trading session.

Trade with your money

It can be a good idea to use leverage in day trading stocks, especially if the stock is not volatile enough, and you want to gain on some pips. However, it is better to trade with your own money without borrowing from the broker, or at least at the beginning before you are fully comfortable with day trading.

Because you are not used to day trading, or the market is not volatile enough to receive gains, you will end up indebted to your broker if you lose while trading with leverage.

Follow the news

Stocks are usually associated with global news and events, these are factors that affect the stock price. Therefore, if you want to ensure that you gain in day trading stocks, keep your eyes on the news that surrounds the stock market, or in industries that are connected to the stocks that you are trading.

When you become aware of the live news in the market, you can react instantly and make decisions regarding your stocks, which can help increase your gains, or avoid excessive losses.

See day trading as a full-time job

Day trading requires a lot of attention. You should look for every small detail in the market and act accordingly. If you are executing more than one market position, you need to look through multiple stock charts and keep up with all of their news.

Thus, if you have a full-time job that clashes with the global stock exchange markets, you will be distracted either from your job or from your trading positions.

Therefore, you need to see day trading in stocks as a full-time job. You will have to start trading at the beginning of the trading day, follow up and manage your trade during the day, and close your trading position by the end of the day. It is similar to a 9 to 5 day-job, and you need to take it seriously to gain experience and confidence in trading.

• There is a minimum trading capital requirement if you are going to day-trade US stock swhen using a margin account
• Most day traders set their reward-to-risk ratio at 1.5-to-1 at least, which means if you are losing 1% of your equity, you will hopefully make 1.5% in profits
• Trading fees are very important to consider, especially those related to market entry and exit because in day trading you need to open and close several trades in a single day
• If you are new to day trading, you are recommended to start small, because day trading can become overwhelming as you need to manage the opening and closing of several positions each day