Last Updated on 18 October, 2020 by Samuelsson

In the US, day trading in the stock market is restricted to only those who have at least $25,000 in their trading accounts. So, you may be wondering if there is also such restriction in swing trading, which is why you are asking whether swing trading is illegal.

No, swing trading is not illegal, and there is no restriction whatsoever on the amount you can use to start swing trading stocks. However, you need to start with an amount that is big enough to buy the stocks you intend to trading without risking too much of your trading account. Moreover, you must be of the legal age 18.

In this post, you will learn the following:

  • What swing trading is
  • Any restrictions on swing trading
  • How much capital you need
  • How to start swing trading

What is swing trading?

Swing trading is a method of trading that sets out to profit from the medium-term price moves, which are actually the up and down price swings on the daily timeframe. Those swings normally can last from a few days to a few weeks and can yield a reasonable amount of profit over such a short period.

To find a good trading setup, swing traders often make use of technical analysis, with little or no input from fundamental analysis. They try to enter a trade at the beginning of a new swing and get out before the swing ends to avoid giving back their profits during pullbacks. So, timing the swings is very important in this style of trading.

Any restrictions on swing trading? Is it illegal?

Unlike in day trading where there is a restriction in the capital requirement for trading the stock market, there is no such restriction in swing trading. You can start trading with any amount you have, provided that amount can buy the stock you intend to trade using a sizeable stop loss without risking more than your preferred percentage of your account capital.

However, as with any other financial and legal engagement, you must be up to the legal age of 18 to be allowed to open a brokerage account for swing trading. This age restriction is the only restriction in swing trading. Once you are up to that age, you can swing trade any asset, including the stocks, futures, options, and forex.

So, swing trading is not illegal in any way. The word illegal should not even come in at all because nobody can be prosecuted for trading the stock market the right way. Illegality comes only when there is insider trading, which is a situation when the trader unduly gets certain nonpublic information about a company that gives him/her an edge in trading.

How much capital do you need to start swing trading?

You can start swing trading with any amount, but you need to consider the following factors that determine the minimum account size for you.

Your acceptable account risk

Your acceptable account risk is the percentage of your account you are willing to risk in each trade. For a new trader, you should keep that around 1-3% to avoid getting into a huge drawdown or even blowing your trading account. However, you should know that if you are to trade reasonably priced stocks and give enough room in your stop loss, 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.

The price of your chosen stock

The price of the stock you want to buy matters a lot. 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.

To put it another way, if you have only a thousand dollars or a few hundred dollars to start with, you will have to limit yourself to trading lower-priced stocks, such as stocks trading around $10-50 or thereabout. If you want highly priced stocks, you will have to improve your account size.

Your broker’s trading commission

The trading commission is the price that your broker charges for the execution of your trade. It is often a fixed dollar amount irrespective of the number of shares you buy, so the bigger your trading volume, the less you pay in trading commission. But to trade more shares, you need more capital, hence the need to search for brokers with a lower commission. Some brokers even offer trading without commission.

How to start swing trading

It is easy to start swing trading. What is required is just to open a trading account with a stockbroker of choice and fund it with the amount you want to start trading with; then, select the stocks you want to trade and start trading. However, what is quite difficult for an amateur trader is trading the right way and making consistent profits.

To trade learn how to trade profitably, you may need to enroll in a reliable trading course, such as the one offered by the Robust Trader Swing Trading Course. This course will teach you everything you need to start swing trading the right way, including trading strategies, money management, risk management, and trading psychology.

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Final words

Swing trading, when done the right way without insider information, is not illegal. It does not even have the capital requirement restriction that you find in day trading. Anyone who has passed the legal age of 18 years can start swing trading with any amount they have, provided the money can buy the chosen stock while keeping risks at an acceptable level.