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How Much Money Do You Need To Be A Swing Trader? (Swing Trading Advice)

Last Updated on 10 February, 2024 by Rejaul Karim

A swing trader is one who tries to profit from medium-term price moves that last from a few days, up to several weeks. Swing traders do their analysis and trade on the daily timeframe, which affords them the chance to engage in other things like keeping a full-time job. But how much money do you need to be a swing trader?

There is really no minimum capital requirement to start swing trading stocks, as it requires much less capital than other styles of trading. You can start with as little as a few hundred dollars. However, there are a couple of factors you need to consider when deciding how much money to use for swing trading

In this post, we are going to discuss those factors that determine the amount you need to be a swing trader, and they include:

  • Your acceptable account risk
  • The price of the stock you want to buy
  • Trading commission
  • Other costs

How Much Money Do You Need To Be A Swing Trader? (Swing Trading Advice)

Acceptable account risk

One of the key factors to consider when deciding the amount of money you need to start swing trading stocks is your acceptable account risk. What this means is the percentage of your account you are willing to risk in each trade. It is often advisable to keep this low — around 1-3% — especially if you are a new trader so that you reduce the risk of getting into a huge drawdown or even blowing your trading account.

But here’s the thing: the lower the percentage of your account you’re willing to risk per trade, the higher the amount of money you will need to start trading if you are to trade reasonably priced stocks and give enough room in your stop loss. More about that in the next section.

The price of the stock you want to buy

Another factor that also determines the capital you need is the price of the stock you want to buy. A stock can cost anything, from a few pennies to thousands of dollars. If you want to trade the expensive stocks and keep the percentage of your account risked in each trade at an acceptable level, you’ll need to have a sizeable capital.

For example, if you want to buy a stock that costs $700 with a reasonable 10% stop loss but intend to risk only 1% of your account size, a $1,000 account won’t be enough for that. You will need a $7,000 account. Let’s work it out:

  • Barring any slippage, your risk in the trade is 10% of $700 = $70.
  • $70 is 7% of $1,000, which is a lot more than your acceptable 1% risk per trade.
  • $70 is 1% of $7,000, so the minimum capital you will need is $7,000
  • If you are willing to risk 2% of your capital per trade, you will need $3,500 capital
  • Alternatively, you can look for cheaper stocks to trade if you don’t have enough capital

Related reading: How Much Capital Do You Need To Become A Day Trader?

Trading commission

The commission is the price that your broker charges for the execution of your trade, and this could quickly eat into your profits or increase your losses. Most times, commissions are fixed dollar amounts, so you need a bigger trading volume to keep the cost of commission low, but you would also need more capital to trade more shares per trade. Search for brokers with a lower commission. In fact, there are now brokers who offer trading without any commission whatsoever.

Don’t miss: How to start swing trading

Other costs to consider

Here are some of the other costs that you will affect your minimum capital requirement:

  • Slippage: This happens when there is less liquidity and more volatility in the market, making your order to be executed at a worse price than intended. It affects your risk management. With slippage, your stop loss order could be executed at a worse price, making you lose more than you planned.
  • Trading software: You will need to consider the cost of your trading software.
  • Live data: This depends on the market you are trading and your broker. The cost of live data can range from zero to several hundreds of dollars each year.
  • Historical data: If you want to develop your own swing trading strategies, you might have to buy historical data to backtest the strategy.
  • Taxes: You have to pay taxes on your profits too.

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Summing it all up

If you’re starting out with a $1,000 account, then you need to keep costs low. Look for brokers that charge little or no commission. Some of them also offer free charting and trading platforms. Don’t buy stocks that cost hundreds of dollars and also avoid penny stocks since they are illiquid with high volatility. Focus on stocks that trade between $10 to $70.

Here you can find our archive with all our swing trading articles.

 

FAQ

What factors determine how much money is needed for swing trading?

The key factors include your acceptable account risk, the price of the stock you want to buy, trading commission, and other associated costs. No strict minimum capital is required. Swing trading requires less capital than other trading styles, and you can start with as little as a few hundred dollars.

What is acceptable account risk, and how does it influence the capital needed?

Acceptable account risk is the percentage of your account you’re willing to risk in each trade. Keeping this low (around 1-3%) is advisable, reducing the risk of significant drawdowns. However, lower risk percentages may require a higher trading capital.

How can traders keep costs low when starting with a smaller account, such as $1,000?

To keep costs low, traders starting with a smaller account should look for brokers with low or no commission, free charting and trading platforms, and focus on stocks that trade between $10 to $70 to optimize capital usage.

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