How to Day Trade Stocks with Less than $25,000
You need $25,000 to day trade stocks...but you have other choices.
The Financial Industry Regulatory Authority (FINRA) in the U.S. established the "pattern day trader" rule, which states that if a stock trading customer makes four or more day trades (opening and closing a position within the same day) in a five-day period the customer is considered a day trader and must maintain a minimum $25,000 account balance.
Pattern day traders receive some benefits, such as additional leverage.
A stock day trader can trade with 4:1 leverage; typical stock traders (swing traders and investors) can only trade with up to 2:1 leverage.
But if you don't have $25,000 to day trade, are there other ways to do it? Yes, a number of ways.
Trading Stocks with Less than $25,000
Day trading an alternative market, discussed in the next section, is your best option as other markets provide favorable conditions to day traders.
If you only want to day trade the stock market you have a number of options if you don't have $25,000.
- A pattern day trader is someone who makes four or more intraday trades in a five-day period. Therefore, you can make three day trades in a five day period and not be subject to the $25,000 minimum. That's less than one day trade a day, which isn't ideal for a day trader. The only benefit to this approach is that you won't over-trade. The drawback is that you need to pick and choose between valid trade signals, and thus not receive the full benefit of a proven strategy. If you opt to go this route, consider the Daily Range Day Trading Strategy.
- Day trade a stock market outside the U.S., with a broker also outside the U.S. Not all foreign stock markets have the same account minimums or day trading rules as the U.S. Research other markets and see if they offer the opportunities for day trading you are looking for. Consult both tax and legal professionals before considering this approach.
- Join up with a day trader firm. The structure of each firm varies, but typically you deposit an amount of capital (much less than $25,000) and they provide you with capital to trade--with your deposit safeguarding them from losses you may take--or the firm simply leverages your capital. For more on day trading firms and getting hired, see Day Trading as a Career: Don't Make These Resume Mistakes.
- One less attractive choice is to open multiple day trading accounts with different brokers. For example, if you open two accounts you can make six day trades in a five-day period: three trades for each broker. This is less attractive because if you already have limited capital each account is likely to be quite small and day trading with such small accounts isn't likely to produce much income. With small amounts of capital in each account, you are severely limited in the types of stocks you can trade, and some brokers may not even accept the small deposit.
Brokers are out to protect themselves and can impose minimum capital restrictions at their discretion if they believe someone is day trading regularly (even if below the four trade/five day threshold), or trading in a risky manner. Therefore, day trading stocks with less than $25,000 isn't recommended.
Instead, trade markets that welcome day traders, and require far less capital.
Day Trading with Less than $25,000 - Trade a Different Market
This section provides a basic summary of each market, and the recommended minimum capital you can start day trading with.
- The forex market trades 24-hours a day during the week and is where the world's currencies are traded, such as the U.S. and Canadian dollars, and the Euro. Think forex is confusing? Here's what you need to know. With forex trading it's recommended you start with at least $500, but preferably more. The forex market offers leverage of 50:1 (varies by broker), so a $500 deposit means you can trade, and earn on (or lose on) $25,000 in capital. Profits and losses mount quickly. See: How to Day Trade the Forex Market in Two Hours or Less a Day.
- The futures market is where stock index futures (S&P 500 E-mini for example) and commodities (such as gold, oil, and copper) are traded. Futures are an inherently leveraged product, in that a small amount of capital--$400 or $500 the in the case of the S&P 500 E-mini contract--gives you a one contract position in a product that moves 10+ points a day, where each point is worth $50. Profits and losses pile up quickly. It's recommended futures traders start with at least $2500 (if trading a contract like the S&P 500 E-mini), but that will vary based on risk tolerance and contract(s) traded. See Capital Required for Day Trading Futures for more details.
- Day trading the options market is another alternative. Options are a derivative of an underlying product (such as a stock), so you don't need to pay the upfront cost of the stock. Instead, you pay (or receive) a premium for participating in the price movements of the underlying. The value of the option contract you hold changes over time as the price of the underlying fluctuates. What type of options you trade will determine the capital you need, but several thousand dollars can get you started.
Day Trading with Less than $25,000 - Final Word
If you have less than $25,000 you can still day trade. It just shouldn't be in the stock market, though. The stock market is capital intensive and provides minimal leverage. Almost all day traders are better off using their capital more efficiently in the forex or futures market. These markets require far less capital to get started, and even several thousand dollars can start producing a decent income in these markets (see How Much Money Can I Make As a Day Trader).