Minimum Capital Required to Start Day Trading Futures
The recommended capital requirement for day trading futures.
Want to day trade futures? Futures are one of the most accessible markets for day traders. You can typically start with less capital than you'd need for day trading stocks, but a bit more than the minimum capital required to trade forex. Different futures brokers have varying minimum deposits but based solely on market traded, and trading style, the scenarios below will help you determine the minimum amount of capital you should start day trading futures with.
Before even discussing the minimum starting capital for day trading futures, risk management needs to be addressed.
Day traders shouldn't risk more than one percent of their account on any single trade. If trading a $10,000 account, that means the maximum loss a trader should take is $100 on any given trade. That way even a string losses won't significantly draw down account capital (see Determine Proper Position Sizing for Futures Trading).
The risk is determined by the difference between your entry price and your stop loss order (in ticks), multiplied by the number of contracts taken and the value of each tick. The next section looks at some examples.
Minimum Capital Required
There is no legal minimum on what balance you must maintain to day trade futures, although you must have enough in the account to cover all day trading margins and fluctuations which result from your positions.
Day trading margins can vary by broker. E-mini futures, especially the E-mini S&P 500 futures (symbol ES) typically have the lowest day trading margins, $500 with some brokers. That means the trader only needs $500 in the account (plus room for price fluctuations) to buy/sell one E-mini S&P 500 contract.
Since the E-mini S&P 500 contract is heavily traded, and a highly day tradable market it will be used in the examples below as it is a good entry point for day traders. If a trader seeks to trade other markets, they will need to check the required day trading margin for that contract and adjust their capital accordingly. While broker's day trading margins vary, NinjaTrader Brokerage provides a list of their current day trading margins. Margin requirements are subject to change.
Capital and Risk
To see how much capital is needed for day trading futures (in this case the E-mini S&P 500) we need to understand the contract and the risk it exposes us to.
Futures move in ticks, and each tick movement in the E-Mini S&P 500 is worth $12.50.
Assuming you'll need to use at least a four tick stop loss (stop loss is placed four ticks away from entry price), the minimum you can expect to risk on a trade in this market is $50, or 4 x $12.50. Based on the one percent rule, the minimum account balance should, therefore, be at least $5,000, and preferably more. If risking a larger amount on each trade, or taking more than one contract, then the account size must be larger to accommodate. To trade two contracts with this strategy, the recommended balance is $10,000.
If your strategy calls for a six tick stop loss, the risk on the trade is a $75, or 6 x $12.50. In this case, the recommended minimum balance is $7,500, or $75 x 100. For two contract it's recommended you have $15,000, or $22,500 for trading three contracts (based on the six tick stop loss strategy). Just multiply the risk of trading one contract with your strategy by how many contracts you would like to trade.
While not recommended, the risk level can also be adjusted to allow two percent risk on each trade. Doing so still keeps risk controlled and reduces the amount of capital required.
Assume the six tick stop loss, which puts $75 at risk per contract. If we allow this to be two percent of the account, your balance only needs to be $3750, or $75 x 50. To trade two contracts the recommended amount is $7,500 and to trade three contracts the recommended balance is $11,250. By allowing risk to equal two percent of the account instead of one percent, the recommended day trading account minimum is reduced by half. Risk four ticks per trade and two percent of the account, and you only need to maintain a balance of $2,500.
Some futures brokers require a $10,000 minimum deposit to start day trading futures. Check with potential brokers for such limits.
Decide if you are going to risk one percent or two percent on each trade. Ideally, new traders should risk only one percent while traders with a successful track record can risk two percent. If risking one percent and only trading one contract, you'll need at least $5,000 to $7,500 to start day trading E-mini S&P 500 futures with a four to six tick stop loss respectively. Willing to risk two percent on each trade? Then those figures can be cut in half.
The tick value and day trading margin for other futures contracts will also affect the amount of capital you need. If trading a different contract, see what the day trading margin is, then determine what your stop loss will need to be to effectively day trade the contract. Then work through the steps above to determine the capital required to start day trading that futures contract.