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hanz

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Trading what? Knowing what you are trading is as important as how to trade it. A little more info on what you are planning to trade would be helpful to answer your question.

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Hanz-

If you are highly skilled with your Risk Reward Ratio/money management/discipline you would be able to start with less. If you are not, I would start with more capital.

 

Example you say: Sure- If you enter a trade, set your S/L upon entering at a determined percentage of your account size or dollar amount, and then you have the ability not to move it or tweak it- then you can start with less- if not, I'd start with more.

Aaron

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What if you wanted to trade individual stocks. Would 40k in a margin account be a decent start?

 

To be brutally honest, if you are asking questions like this, this means you have no system, no plan and no backtesting and you should not even think about trading until you do. If you do, you would have a pretty good idea what account size you need for your type of trading and goals.

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What if you wanted to trade individual stocks. Would 40k in a margin account be a decent start?
PDT rule says $25K is the account mininum for daytrading equities.

 

Good luck.

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Sorry I should have stated the question more clearly. I know that day trading min is at 25k if you make 4 round trips a week. The question I should have asked is 15k a reasonable cushion above the 25k min. I actually do not plan to do this for about a year while soaking up knowledge and practicing strategies and such and then will I decide whether or not to make the jump but want to know how much I should expect to save. Are equities not the best thing to start with? Any feedback is appreciated.

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You should only plan to trade $$$ that you can afford to lose.

 

Especially the first time around. Prepare to blow out an account or two of real money until you get the hang of it.

 

Good luck.

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trade futures the margin is less and the account size does not need to be so high and the gains are significantly higher , I like the SP , wheat, corn , t-notes all can be traded with an account around 5k if you wanted too.

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WIth futures on things with wheat and things like that though isnt it a lot harder to apply fundamentals which come from news and other sources as it isnt as publicized as companies are? basically the reward is higher but isnt also a lot harder compared to stocks where more information is available?

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trade futures the margin is less and the account size does not need to be so high and the gains are significantly higher , I like the SP , wheat, corn , t-notes all can be traded with an account around 5k if you wanted too.

 

You failed to mention something about trading futures, esp on a small account - you can blast through that account in a day if you are not sure what you are doing.

 

Futures are attractive b/c you can jump in w/ very little on deposit but it will evaporate rather quickly if you are not careful.

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trade futures the margin is less and the account size does not need to be so high and the gains are significantly higher , I like the SP , wheat, corn , t-notes all can be traded with an account around 5k if you wanted too.
The gains are higher but so are the losses. And in the beginning one can expect rather losses than gains. Playing 1 contract in futures can still mean quite big money for a beginner. With equities you can size your positions much better. But I think 40k is enough for daytrading future contracts. If you can manage your losses under 200 per trade, it represents 0.5% of capital. 0.5 - 1% is reasonable.

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With futures there is much more volatility, correct? My idea was to trade equities because it is a market I already have a basic understanding of and if you are buying 500 shares of a $30 stock it isnt often it is going to go more than a point or two in one direction or the other.

 

I am not trying to get rich quick so my idea was if you can be successful with stocks say in 500 share lots and maybe make a point a day then that would be $500 gross (before taxes and broker fee). I understand there is still considerable risk and a lot more capital is required but my feeling is it is less volatile at the same time so it would be possible to have your account in better control for a beginner.

 

Any thoughts or feedback on this would be appreciated.

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I dont recommend you trying to make hundreds per trade but tens. Take 50 shares instead of 500 for a beginning. There is no need to rush. Once you start to be profitable with small money, then you can rise your bets. Diversify your capital, take more smaller positions rather than one big one. There might be a sudden 30% move (even gap jumping over your stop), and if you had all your capital in one trade you could lose a lot.

 

Problem is futures is not the volatility. Some stocks are more volatile than most futures. The problem (or advantage if you are experienced enough) is the leverage which allows you to take much bigger positions.

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The thing is if you are trading such small lots I fear the broker fee is going to eat almost all of your gain. Also I understand there is always risk of something like this happening but how often does a stock suddenly drop 30%. This rarely happens in a single day nevermind within 15 minutes.

 

I would consider possibly starting with 100 share lots. It seems like not many people on this site actually trade equities, is there a reason other than the higher leverage available in trading commodoties?

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The thing is if you are trading such small lots I fear the broker fee is going to eat almost all of your gain. Also I understand there is always risk of something like this happening but how often does a stock suddenly drop 30%. This rarely happens in a single day nevermind within 15 minutes.

 

I would consider possibly starting with 100 share lots. It seems like not many people on this site actually trade equities, is there a reason other than the higher leverage available in trading commodoties?

 

Futures are more simple when it comes to tax time, you don't need as much capital and the pattern day trader rule doesn't apply. Those are probably the main reasons. I also find it much easier to monitor one or two markets and study those charts rather than keep up with a dozen or more stocks all at once. The bid/ask spreads in futures are small too which is nice when it comes to managing a trade.

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The thing is if you are trading such small lots I fear the broker fee is going to eat almost all of your gain. Also I understand there is always risk of something like this happening but how often does a stock suddenly drop 30%. This rarely happens in a single day nevermind within 15 minutes.
My apologies, I forgot you wrote about DAY trading stocks. Daytrading 50 shares lot indeed doesnt make much sense. And the over-night gaps are would be avoided by daytrading, too.

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... is there a reason other than the higher leverage available in trading commodoties?

 

* 60/40 tax treatment in US

* easier to focus on a couple markets, or just one

* leverage

 

Those are the 3 main things for me.

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day trades are taxed at 40%, are you sure on this? i thought it was closer to 25

 

I think I know how futures are taxed. :roll eyes:

 

http://www.traderslog.com/futures-trading-taxes.htm

Commodities futures capital gains/losses are reported on Form 6781 (Section 1256 Contracts), which qualifies these for an advantageous tax split: 60% at the long-term rate of 15% and 40% at the ordinary short-term rate of up to 35%, or a combined rate of 23%, for a tax savings of 12%.

 

Because of this attractive 60/40 split, most commodities traders forego mark-to-market accounting and its favorable “loss insurance” in order to reap the benefits of the lower capital gains rate.

 

http://www.law.cornell.edu/uscode/26/1256.html

 

(3) any gain or loss with respect to a section 1256 contract shall be treated as—

(A) short-term capital gain or loss, to the extent of 40 percent of such gain or loss, and

(B) long-term capital gain or loss, to the extent of 60 percent of such gain or loss, and

 

Straight from the IRS form (which is also attached to this post):

attachment.php?attachmentid=7542&stc=1&d=1218817633

tl3.png.92408c247a2d4f486110280aa76b5f91.png

f6781.pdf

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Sorry for being slow and confused but simply you are saying what.

 

If you day trade equities, you are taxed at 40%?

 

 

Then what is the tax rate for futures contracts?

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