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How To Start Day Trading With $500


How To Start Day Trading With $500

Image Source: Charles Schwab


Day trading is becoming increasingly popular, especially among beginners with small investments. First, create an account with a reliable broker and deposit funds. Some sites do not require a minimum deposit and are therefore available for small amounts to start trading. Contrary to the belief that you only need $1,000  to get started, you can actually start with as little as $500.


Day trading is a risky “investment” strategy and  it is important that anyone wanting to engage in it is well informed about the risks before making any decisions. If you have some investing experience  and are confident in your ability to make good decisions,  starting at $500 could be a good option.



Steps to Take Before getting in Day Trading with $500


Over 70% of inexperienced traders blow up their account after a few months. To avoid these pitfalls, investors should evaluate themselves based on the following factors:


Beginners should stick to the basics first. Try to understand basic technical indicators, market theories and strategies. Never rush to learn or buy “secret trading strategies” because most of them are scams. There are tons of day trading resources available online that you can use with free and cheap resources to build your base. Markets are becoming more complex day by day and new trading instruments appear from time to time. You also need to keep up with  economic and  financial news to understand its impact on the volatility of market trends.


Set Financial Goals:

Set realistic financial goals and aim for a consistent success rate of over 50%. Start with modest investments and expect a daily return of less than 1%. Aim to grow your account from $1,000 to $2,500 per year, and understand that building significant wealth  takes time.



Sharpen Your Trading Skills Through Demo Accounts:


Before risking your capital, start experimenting with your trading strategies, market theories and platform tools. Fiction accounts allow you to gain meaningful experience without losing money. Most day trading platforms  allow customers to create demo accounts. They provide virtual funds and reflect real market conditions.



Trading Strategy:


Develop a trading strategy that supports your trading plan. A good strategy should take into account the following parameters:


Trading Time: Day traders need to constantly monitor the markets and identify opportunities. Day trading becomes difficult when you are short on time.


Financing: Don't risk all your capital. Successful investors also set their risk limit to less than 2%.


When to enter the market: You can use tools such as intraday candlestick charts, real-time news and ECN/Level 2 quotes. Indicators to pay attention to include momentum, volatility, and volume.


When to exit the market: Depending on the trading instrument, you can use market dynamics and daily fluctuations to exit.


Risk Management: Use Stop Loss Orders, Profit Targets and guaranteed Stop Loss Orders.


Keep excellent records: Many experienced traders are also excellent record keepers.They want to know exactly why and how they won or lost the case. The targets, entry and exit points of each trade, timing, support and resistance levels, daily opening range, market open and close, and comments on the logic of the trade  should  be noted and insights gained from them.


Backtesting: Examine your trading strategy using historical data (backtesting) to see if it fits your game plan.


                    Selecting A Broker


The good news is that many brokers have eliminated high minimum deposits. However, opening an account with the right trading partner is crucial for success. Some platforms target traders in a specific niche, while others target different levels of trading skills.


 A good day trading broker usually has the following features:


      Affordable fees and commissions

      Low minimum deposit

      Wide range of features and functions

      Fast and cheap deposit options

      Regulated and secure platform

      Good speed of trade execution 

      Research capabilities


The brokers of the Electronic Communication Network (ECN) simplify day trading by helping traders take advantage of market opportunities with low commissions and spreads. Make sure your broker supports trading in micro lots (0.01 lots). Intraday traders should be aware that the American Pattern Trading (PDT) rule limits traders with $500 in capital to three-day trades on five consecutive days.


Before all  major discount brokers cut their commissions to zero, the only choice for such a small account was a bad broker like Robinhood. Now you have additional options with major offerings like TD Ameritrade and Charles Schwab. Both  brokers (along with most other major US discount brokers) offer free commissions and advanced software packages  for active traders. As a day trader with less than $25,000 in your account, you are subject to the Pattern Day Trader (PDT) rule, which prohibits you from making trades for more than three days in a five day period. Due to this restriction,  traders who want to be very active can use an offshore broker to which the PDT rule does not apply.


Financial instruments recommended for investment

Image Source: WiserAdvisor


The most popular intraday trading includes forex,  stocks, futures, options and index funds. Before choosing a tool, you need to understand its principles and functions.



Forex Tools:

Consider trading  EUR/USD, USD/JPY and GBP/USD.Due to lower liquidity,  long-term pairs such as USD/CAD and exotic pairs should be avoided. Forex derivatives such as Forex futures and  options are popular among traders.


Commodity Futures

Commodity futures are derivative contracts that depend on the future price of a physical asset. Physical commodities such as crude oil, gold, silver and wheat are very liquid. They offer intraday traders the opportunity to speculate on price movements.These contracts have a specific expiration date.


Index Futures

Index futures  are concluded between two parties and allow investors to trade  a financial index and settle it over a specific period of time. Examples include  Nasdaq, S&P 500 and Dow Jones Industrial Average (DJIA) futures.





Exchange Traded Funds also offer high liquidity and low costs. These are  financial assets that arise from the merger of several large companies operating on the stock exchange. EFTs offer real-time stock trading and  mutual fund diversification. Examples include  VOO, which tracks the S&P 500 Index, and  Vanguard Total Stock Market EFT.


Contract for Difference (CFD)

Intraday CFD focuses on highly volatile markets and involves closing positions throughout the day. Short-term speculative traders can use CFDs to profit from small price fluctuations in the market. Traders can monitor changes in the stock market, indices or forex market and try to take advantage of opportunities that arise.



       Hypothetical Scenario For Investment


Assuming you are trading $500 worth of Forex with  a  micro lot broker, then a perfect session looks like this.


       Assume a profit interest rate of 50%.

       Four trades with a target of 8 pips and an average stop loss of 5 pips.

       Day trading  $500 on Forex 20 days a month using a micro lot of 20.

       20 - micro lot will hold your risk less than $5 (1% of $500).

       Possible Loss Calculation = 20 x $0.05 x 5 pips = $5 is the risk per trade.




Evaluating the plausible financial benefits



      Four trades X 20 days = 80 total trades per month

      50% winning rate X 80 trades = 40 trades are winnable

      A winning trade with eight pips translates to 8 pipe X 20 micro lots = 16$

      Losing trade with 5 pips translates to 5 pips X 20 micro lots = $10

      Winning total trades 40 X $16 = $640

      Losing trades 40 X $10 = $400

      Monthly profits $640-$400 = $240

      Total commissions 80 trades X 20 micro lots X $0.05(round trip)= $100

      Monthly profit, including commissions $240-$100 = $140

      The percentage return is 14% on a $500 account



Frequently Asked Questions:


   Can you trade options for just $500?

You can change options for as little as $500, however it is crucial to keep in mind that options buying and selling entails extensive risks and won't be appropriate for each person. Online brokers like Robinhood and TD Ameritrade provide commission-free alternatives trading and assist you to begin buying and selling without a minimal deposit.




   Can you day trade with a small amount of money?

Yes, it is possible, but the amount  required to start day trading depends on the broker you use and the regulations in your country. For example, brokers such as Robinhood, TD Ameritrade and E*Trade offers a range of investment products with no minimum deposit requirements to open an account.



   What is the minimum amount for starting day trading?

The minimum amount to start day trading varies depending on the platform. Many platforms have eliminated the need for an initial minimum deposit.



   What is Inside Day in Trading?

An inside day is a day where  price movement is limited to the previous day's range.  This means that neither buyers or sellers have been able to take control and drive prices to new extremes.  Inside Days can occur during uptrends, downtrends or sideways consolidations.



    What is Forex day trading?

. A trader buys and sells currencies during the trading day. Forex day traders tend to close all open positions before the end of the trading day  to reduce daily risk. A trader places multiple trades or places trades multiple times to try to profit from small market movements.


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