Minimum Capital Required to Start Day Trading Futures

Futures Brokers, Margin Accounts, and Leverage

The minimum deposit limits for individual accounts trading futures vary among different futures brokers. Traders will use leverage when executing these contracts. Leverage means that the trader does not need the full value of the trade as a balance in the account. Instead, the broker will allow the trader to maintain a margin account.

Risk Management

Before discussing the minimum capital required to start day trading futures, risk management must be addressed. Day traders should not risk more than 1% of their account balance on any single trade. If a trader is trading with an account worth $10,000, this means that the maximum loss the trader should endure is $100 on any particular trade. This way, even a series of losses will not significantly impact the account’s capital.

Minimum Required Capital

There is no legal minimum balance that you must maintain for day trading futures, although you should have enough in the account to cover all daily trading margins and volatility resulting from your positions.

Capital and Risk

To determine how much capital is needed for day trading futures (in this case, E-mini S&P 500), we must understand the contract and the risks involved. Futures contracts move in units called “ticks,” and each tick movement in E-Mini S&P 500 is worth $12.50. Assuming you will need to use a stop loss of at least four ticks (the stop loss is placed four ticks away from the entry price), the minimum you can expect to risk on a trade for this market is $50, or 4 × 12.50. Based on the 1% rule, the minimum account balance should be at least $5,000 and preferably larger. If you are risking a larger amount on each trade, or taking more than one contract, the account size should be larger to accommodate that. To trade two contracts using this strategy, a balance of $10,000 is recommended.

The Bottom Line

Decide whether you will risk 1% or 2% on each trade. Ideally, new traders should only risk 1%, while traders with a successful track record can risk 2%. If you are risking 1% and only trading one contract, you will need at least $5,000 to $7,500 to start trading E-mini S&P 500 futures with a stop loss of between four to six ticks in a row. Are you willing to risk 2% on each trade? In that case, those numbers can be halved.

Frequently Asked Questions (FAQs)

When do futures open on Sunday?
The futures trading week starts at 6 PM Eastern Time on Sunday.

What is the difference between options and futures?
Options, like futures, are derivatives that allow you to make advanced trades on underlying assets such as stocks or exchange-traded funds. However, options trade more similarly to stocks. They only trade during regular stock trading hours. For day trading options, you will need permission as a pattern day trader, just like stocks. This means maintaining a minimum equity balance of at least $25,000.

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Sources:
BBVA. “Learning With BBVA Trader: Using Leverage When Trading Stocks.”
U.S.

Securities and Exchange Commission. “Margin: Borrowing Money to Pay for Stocks.”
My Trading Skills. “Why Day Traders Should Stick to the 1 Percent Rule (and How to Do It).”
Trade Futures 4 Less. “Margin Requirements.”
TD Ameritrade. “Available Products.”
Cannon Trading Company. “Futures Trading Commission.”

Source: https://www.thebalancemoney.com/minimum-capital-required-to-start-day-trading-futures-1031173