Day trading currency futures! How much money do you need?

By | May 29, 2017
Day trading currency futures

Day trading currency futures can be a lucrative way to make profits on a regular basis. There are well known traders who only day trade futures for a short period. Despite spending a small amount of time, the part-time traders do churn out a decent profit. There are several things to consider when it comes to success with futures trading.

Having a good starting capital is one of the key things that will get you started with day trading. Having a decent starting capital for day trading currency futures can help you in the long run.

Three reasons why your starting capital is important for day trading currency futures

Here are some of the reasons why you need to have a good capital for day trading currency futures. It is possible to day trade for as little $500. But remember that you will be greatly limited in what contracts you can trade.

Below are some factors that influence the amount you need to day trade currency futures.

1. Contract Size & Margins:

Contract size in futures trading means the number of units of a currency futures contract that you can buy or sell. The minimum contract size you can trade is 1 standard lot or one contract.

Because currency futures day trading is done on margin, you need to have enough capital. This capital should be sufficient so that it covers the costs. The most common costs are the initial margin and the maintenance margin.

After your capital is allocated towards the initial and maintenance margin, you still need to have enough to cover your trade.

The best way to understand this is with an example.

Imagine that you are trading the currency futures contracts such as the E-mini euro futures. The average day trading initial margin required is $500 for one contract.

This means that you when you open a trade in euro futures, $500 will be deducted from your capital. You also need to have a maintenance margin of $500.

In other words, if your capital falls below $500, you will get a margin call. Read more here about margins in futures trading.

Example of costs for day trading currency futures (E-mini Euro)

Example of costs for day trading currency futures (E-mini Euro)

Going back to the example, our costs are $1000 already. Now we need to know the tick size.

For the e-mini euro futures contracts, the tick size is $6.25 with the minimum tick being 0.0001. For example, if the euro futures contract moved from 1.1200 to 1.1210, that is a 10-tick move.

Multiply this with the tick size and that is $62.50.

Let’s say price fell 50 pips from your entry and you were long. That means 50 x $6.25, which is $312.50.

Summarizing our costs, we have:

$500 locked in initial margin

500 required for maintenance margin

312.50 our current trade

Now if you were trading with $2000 in starting capital, your balance would be:

$2000 – $500 (Initial Margin) – $500 (Maintenance Margin) – $312.50 (current loss on the trade) = $687.50

Besides the above costs we also have commissions to pay. These are small costs in comparison though, at just $2.50.

As seen from the above example, to be able to have a decent margin to trade, a minimum of $2000 is required. But this is cutting it fine as this amount of capital is enough to allow you to trade just one contract.

Here is a table summarizing the above, to make it clearer.

Capital Contract Size Initial Margin Maintenance margin Is it enough?
$1000 1 contract $500 $500 No
$2000 1 contract $500 $500 Yes ($1000)
$2000 2 contracts $1000 $1000 No
$5000 2 contracts $1000 $1000 Yes ($3000)

 

2. Tick size and values

The tick size and values of the currency contracts that you trade also influences your flexibility. If we go back to the previous example, we know that the E-Mini euro futures contract has a tick size of $6.25. Roughly put, a 100-tick move will cost you $625.0.

Now, if you were trading two contracts, the same 100-tick move will now cost $1250.00

Not only does your capital requirements increase towards the margins but also the tick sizes start to increase.

No why is this important you ask?

Imagine you took a long position in E-mini euro futures contracts at 1.1200. Your target is set to $1.1250, which is a 50-tick move. You have set your stop loss to 20-ticks, which is $1.1180.

If we take the basic calculation of $6.25 per tick, your risk and reward comes to $312.50 and your risk is $125.00

If you had other position also opened, you must ensure that you have at least $600 as available balance in your trading account. This is because you need to maintain a minimum balance of $500 and ensure that your trade can slip to say, 10-ticks ($62.50).

Even if price falls 15-ticks lower from your entry, that would cost you $93.75 leaving you close to getting a margin call.

3. Scaling or trading multiple contracts

Scaling or position sizing is often used to ensure to make more profits in a trade. However, this is only possible if you have a decent trading capital to begin with. Furthermore, trading with a small capital will limit you to just one contract at any point in time.

Sometimes, markets tend to stay flat you end up being stuck in a position while you spot another good trading opportunity.

With a good starting capital, it will be easy to manage multiple positions day trading currency futures.

Ok, understood. So how much money do I need to day trade currency futures?

If you are content with and will not complain trading just one contract, $1500 – $2000 in trading capital is ideal. However, chances are that sooner rather than later you will end up looking to trade few more contracts.

In such cases, a minimum day trading capital of $5000 is required to successfully day trade currency futures market.

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