There’s a lot of brokers out there that will allow you to day trade Futures with $500 in margin… like a lot. I get it. You’ve seen all the people online showing off their riches that they’ve made trading, and you want that kind of life too, so you think “Hey, I can put in a measly $500. I can risk that, and then I can millions. I can be that guy too.”
Well here’s the not so shocking truth… You can’t.
Not with $500 at least. You can absolutely make it as a day trader, swing trader, whatever-trader. But you can’t with $500.
It’s Just Math– You’re Overleveraged.
The issue with day trading Futures with $500 in margin is that you’re just overleveraged. Most Futures products are hundreds of thousands of dollars in notional value.
For instance, the E-Mini S&P Futures are currently trading for about 2,550. Every 1 point move is worth $50 per contract. So multiply $50 per point times 2,550 points and you come out to $127,500.
Now divide that by $500 and you come out to 255. You’re leveraging yourself by 255x. Most professionals (i.e. people who actually make money) don’t go beyond 10x, with the vast majority staying under 5-6x.
In other words, with $500 in margin, a 10 point move in the E-Mini S&P’s will blow up your account.
What About Trading Stocks?
In the United States, most margin accounts can’t use more than 4x leverage. That doesn’t sound like a lot, but considering your average Stock can move 3% in a day that’s a 12% return if you caught the entire move (and no, you don’t want to bet on buying the bottom and selling the top… if you do, you’re a nimrod).
That’s great, except that unless you have an account with at least $25,000 in it, you’re SOL (shit out of luck, in case you were wondering). Sorry, it’s just the regulatory rule.
And at that point, you might as well trade Futures because they are some of the most liquid instruments in the world.
You’re better off spending that money elsewhere, instead of trying to use it to day trade. Seriously. The odds are so extremely thin that you will turn $500 into… well, any amount of money when you’re using that much leverage.
What should you do instead? I don’t know… save it? Spend it on a nice dinner, or vacation? It’s your choice!