Day trading is one of the best ways to invest in the financial markets. Unlike standard investing, where you put in money for a long period of time, day trading is short term – you open and close all your trades intraday. You may not want to trade a lot of money due to risk aversion or a lack of funds and in this article we will discuss how to start trading with minimum amounts like $100.
While it is possible to trade with $100, there are of course there are contingencies and caveats. For example, while technically it’s possible to trade with a starting capital of only $100, the question is, does your broker allow it? And if they allow it, what strategy are you planning on utilizing? Detailed research, thorough calculation of your strategic outcomes and strict risk management rules need to be defined.
How to Pick the Instruments to Trade?
When trading with small sums, aim for higher gains, otherwise your accounts will grow at a painfully slow rate. The higher the volatility of the instrument the higher the gains you can achieve. As the biggest market in the world, the currency market trading volumes cause very high volatility making it a good market to trade in with small amounts of money.
While this narrows it down the market, the question of which forex pairs to trade still remains. Since your account is very small, you need to keep fees and costs as low as possible. You can keep costs low by trading the well known forex pairs, such as GBP/USD, EUR/USD and USD/JPY. These major currency pairs are the most volatile forex pairs as well as the ones that cost the least in terms of spread.
How to Determine Your Strategy?
Your strategy is crucial to your success when dealing with a small account. You need to consider when to trade, the amount you’ll invest in each trade, when you’ll enter a trade, how you will manage your risk and when you’ll exit a trade.
When Should You Trade?
A good time to trade is when market sessions overlap. For example, when the London markets and the U.S. markets are both open since that will be when the forex pairs are most volatile.
How Much Should I Trade?
According to some, the best approach is to invest a large portion of your $100 in each trade, but only have one trade open at a time. It is possible to trade using 60% of your bankroll in each trade and simultaneously have no more than one trade open. With this strategy you can gain on a single trade in a big way rather than gaining on multiple very small trades.
When Should I Enter the Market?
Your strategy should predetermine what conditions you will enter and exit the market in. There are also various technical indicators to do this such as chart patterns, volume, volatility and momentum. Indicators help determine specific market conditions and discover trends. With knowledge of a trend, you can aim for high returns by riding that trend.
How Much Should I Be Risking?
If you had a large sum of money in your account that you were trading with risking 2% or less would be appropriate. However, since we are talking about a case in which you only have $100, you can take a bit of a higher risk because your losses are limited to only what’s in your account. In such trading conditions, risking 3% per trade is reasonable as it would mean a $3 maximum risk in each deal.
When Should I Exit a Trade?
Since we are dealing with a $100 a more aggressive approach is required with some exit rule tweeks. For example, using a trailing stop-loss order as opposed to a regular one. In this case, the same risk management rules apply, but with a trailing stop. Catching a trend will put profit aside every time the market ticks in your favor, and if you manage to catch a big spike in the market, then the trailing stop will close the bigger part of the profit. With this strategy, you will stay in the market so long as it’s trending in your favor, and will only exist if the price hits your stop loss.
Conclusion
To start day trading with $100, the first step is to select a broker that allows you to trade in the style you want and help you successfully conduct trades. Next is to pick the instruments you want to trade; this will require a lot of time and research. The following step is to work out a strategy. Before you begin any type of trading you need a well thought out strategy that you will stick to! Once all that is done…. happy trading!
