Interested in swing trading stocks–taking trades that last a few days to a few weeks–and wondering how much money you need to get started? How much capital you’ll need is dependent on the strategy you use, the price of the stock you trade, position size and how many trading positions you have at any given time. This article provides various scenarios for how much cash you’ll need to swing trade stocks in a risk-controlled way, which will improve your chance of success.
Markets You Can Swing Trade
Swing trading is taking a position that could last a day to a few weeks (maybe a couple months for some traders/trades). How long a swing trade lasts depends on the strategy you’re using and what you expect from your trades. If a stock typically moves 1% per day, and it needs to move 10% in order to reach your target (where you want to get out with a profit), it could take several weeks or more before the price makes its way to your exit point (if current conditions continue).
Swing traders hold positions overnight, unlike day traders (see How Much Money Do I Need to Become a Day Trader?) who close all positions before the day ends. Strategies vary by swing trader, but the main focus is on momentum–swing traders want to capture a decent chunk of price movement in the shortest amount of time possible. When the price momentum ends, swing traders move on to other opportunities.
This style of trading can be done in most liquid markets which have movement you can capitalize on (make money!). Swing trading stocks is popular because there’s always a stock moving with momentum somewhere (see How to Screen For Strongest Stocks in Strongest Sectors (video)).
Forex is also popular because usually there’s a currency pair (or several) that is moving well. Futures are also very popular among day and swing traders, offering a wide array of products (such as gold, bonds, stock indices, volatility, coffee, etc) to trade. Swing trading forex requires less capital than stocks and futures, providing a bit more “bang for buck.”
Let’s look some scenarios in the stock market, so you can see how much money you’ll need to become a stock market swing trader.
Deciding on How Much Capital for Swing Trading Stocks
Strategies vary for swing trading, yet one thing successful swing traders do is control risk. In order to determine how much capital you’ll need to trade, first establish how much you’re willing risk on each trade (in terms of deposited capital) as this affects your positions size.
It’s recommended swing traders risk less than 2% of the account capital on single trade. 1% or less is even better. If you deposit $10,000 into an account, that means you can risk $100 (1% of $10,000) or $200 (2% of $10,000) per trade. Choose which it will be and write it down in your trading plan.
The above is your “account risk.” It’s how much of your account you’re willing to risk on each trade. Next, there’s “trade risk.”
Trade risk is set using a stop loss order–it’s an order that gets you out of a losing position at a specific price. Your trade risk and the account risk determine your position size. To see how this all fits together, let’s look an example from the stock market.
- Position size = Account risk ($) / Trade Risk ($)
Assume you’ll only risk 1% of your capital per trade, and have a $10,000 account; 1% of $10,000 is $100 (your “account risk”). If you’ll likely be starting with a different amount of capital, plugin a different account balance that’s more suitable to your situation.
In order keep our account risk to 1% or less, each trade should have a stop loss attached to it. If you buy a stock at a $20, and place a stop loss order at $19.50, your risk on the trade is $0.50 per share. Since we can risk $100 (1% of the account) we can calculate how many shares we can take on the trade:
- Position size = $100 / $0.50 = 200 shares.
200 shares is your position size, in this example. Based on account risk and trade risk, this is how many shares you want to take for that specific trade.
Understanding how position sizing works is a key in determining how much capital you’ll need to swing trade stocks. Now that you know about that, we can use it to see how much your balance/deposit should be if you want to swing trade.
For guidance on how to find entry and stop loss levels, browse the General Trading Strategies section.
How Much Money You Need to Become a Stock Swing Trader
There’s no minimum capital requirement to become a stock swing trader. Day trader’s (defined as making more than 4 trades a week that are opened and closed within the same day) are required to maintain a $25,000 balance in their account (in the US), but that’s not a requirement for swing traders. Just make sure you don’t end up day trading a lot, otherwise you’ll be subject to this minimum.
The capital you require is therefore related to the price of the stocks you trade, your position size, your account risk and your trade risk (as we saw above, these last three factors are linked).
You can also trade on margin. Stock market swing traders can have to up two times leverage, which means if you deposit $10,000 you can purchase up to $20,000 worth of stock. Account risk is always based on deposited capital, not the leverage amount!
Assume you only risk 1% of your capital per trade. You can work backwards to see how much capital you will typically need. Keep in mind the following guidelines:
- The lower priced stocks you trade, the less capital you require to swing trade.
- It’s recommended you trade stocks $2 and up (no penny stock stuff on this site).
- The closer your stop loss is to your entry price the less capital you need to swing trade, or you can take larger position sizes.
- Having multiple positions at one time may result in needing more capital.
- Ideally, you want to trade stocks in 100 share increments (although you can buy/short sell in less than 100 share increments).
- All trading is risky. Even with a stop loss on a trade is possible to lose all your capital, or even more capital than you deposited if you are trading on leverage.
Stock Swing Trading Capital – Minimum Capital with Low-Priced Stocks
If you trade stocks are that priced about $10 or below, to buy 100 shares you need at least $1000 (without leverage), because $10 x 100 shares = $1000 plus commissions and fees. But you’ll actually want more capital in your account than that to keep you risk on each to a tolerable amount.
Assume that the trades you typical take call for about a 5% stop loss*. That means, the difference between your entry point and stop loss is about 5% of the purchase of the price of the stock. This is just an example, your actual stop loss amount will vary from trade to trade and stock to stock (depending on how the trade sets up, the volatility of the stock, and how much you expect to make—because you don’t risk capital unless you think you can make more than you risk). So if you are trading a $5 stock, your trade risk would be roughly $0.25, since your stop loss would be around the $4.75 mark (5% of $5). If you are trading a $10 stock, your trade risk would be around $0.50 as the stop loss would be at about $9.50.
Making this assumption gives you a baseline for how much capital you need. Trading the $10 stocks will be more expensive, so if you want to be able to trade $10 stocks (and under), multiply your trade risk by 100 shares: $0.50 x 100 = $50. That means you are risking at least $50, since it is recommended you trade a position size of at least 100 shares (called a board lot). That trade risk should equate to only about 1% of your account. Multiply $50 by 100 = $5,000 to see how much capital you need in order for $50 to only be 1% of your account.
- To quickly see how much capital you need, multiply your trade risk by the position size (like we did above), then multiply the result by 100 if risking 1% of your capital.
To trade stocks in a $10 area (or below) with stop loss that is within about 5% of the purchase price, you should have at least $5,000 in your account. This will allow you to keep your trade risk limited to 1% of your account capital.
If trading stocks in the $5 range, and with stop loss about $0.25 away (5%) from your entry point, you’ll need at least $2500 if risking 1%. As your capital gets smaller, commissions and fees will likely erode a significant portion, or all, of your monthly profits. Swing trading stocks with less $2500 isn’t recommended. Strive to trade with at least $5000 to provide some flexibility in the stocks you can trade.
That’s the absolute minimum you should start with if you want to swing trade stocks up to $10. If you use a larger trade risk (your stop loss is further away from your entry price), you’ll need more capital. Factor accordingly. If you take a larger position size, you’ll need more capital or leverage. To trade 200 shares you need double what was discussed above. To take 400 shares, the capital required doubles again. If you take multiple positions at the time, you will likely need leverage.
*Assuming the stop loss will be about 5% away from the entry point is a good estimate if you are trading off the daily chart. I quickly looked at my last 20 swing trades and typically found that my stop loss was about 2.3% to 3% away from my entry point. There were a few trades, in more volatile stocks, where my stop loss was up to 10% away. So assuming you have enough capital to place your stop loss about 5% away from you entry point, you would have had enough capital to take all the swing trades I did, except for the odd few. To be able to trade a stock where you place your stop loss 10% away from your entry point, you need double the capital discussed above.
Stock Swing Trading Capital – Higher-Priced Stocks
If you want to trade higher priced stocks, up to $100 for example, you’ll need more capital. Ideally, you want to trade in 100 share lots, so multiplying $100 by 100 shares shows you need $10,000 in the account just to make the transaction. If you’re leveraged 2:1 then you only need $5,000 in the account (plus a bit of a buffer). But you also need to factor what your trade and account risk are.
If we buy at $100 and place a stop loss 5% away we’re risking $5 per share, so our risk (with 100 shares) is $500. For that risk to only represent 1% of our account, multiply $500 by 100 to get $50,000. The minimum account balance you need to trade stocks priced in the $100 area is $50,000.
If we buy stocks near $150 and place a stop loss 5% away we’re risking $7.5 per share, so our risk (with 100 shares) is $750. For that risk to only represent 1% of our account, multiply $750 by 100 to get $75,000. The minimum account balance you need for this trade is $75,000.
As discussed above in my “*” above, my typical stop loss is actually more like 3% away from my entry point. So if you only took trades where the difference between your entry and stop loss is less than 3% of the stock price, then, you need $45,000 to swing trade stocks up to $150, and $30,000 to swing trade stocks priced up to $100.
While trading in 100 shares is preferred (some brokers don’t accept transactions in less than 100 shares, and how you get filled on your orders may vary slightly from placing orders in 100 share increments) you can trade less than 100 shares if you wish. If you only take 50 shares on a trade like this, for example, then you can cut the above figures in half.
How Much Capital to Swing Trade Stocks? Make A Few Personal Adjustments
If you take more than one position, you may need more capital or leverage.
Note that trade risk is not fixed. It should be set according to each particular trade setup and stock. Don’t risk $0.50 per share (for example) on every trade. For some trades a $0.10 trade risk is adequate, for other trades (high-priced stocks) you may need to allow for $1 or even $10 of trade risk per share.
If you have limited capital, focus on honing your strategy in lower priced stocks. The smaller the trade risk the larger the position size (See Predict Chart Pattern Breakout Direction for Lower Risk Trades); the bigger the trade risk the smaller the position size.
If you have $50,000 or more to trade, with leverage, you have quite a few possibilities–you can trade higher priced stocks with small trade risk and increased position sizes, or increase trade risk but reduce position size (still keeping account risk to 2% or lower). You can also trade lower priced stocks with increased positions sizes.
Based on the above scenarios you probably want to start with at least $10,000 to have some flexibility in the types of stocks you can trade. Even then, if you trade higher priced stocks, your stop loss will need to be quite close to your entry point. Therefore, to trade higher price stocks, and potentially carry multiple positions, it’s recommended stock swing traders have at least $20,000 and preferably $30,000 or more in their account. Using 2:1 leverage is recommended, as long as you are controlling trade risk and account risk as outlined above.
This will also serve to produce a decent income from swing trading the stock market. If you expect to make 5% per month (how much you make will vary by strategy) on a $30,000 account, that’s a $1500 per month income, less commissions. If you try to swing trade with $1000 or $2500 (and make 5% per month), most of the $50 to $125 profit will be eaten up by commissions and fees, leaving you with very little, if any, profit.
If you trade low priced stocks and keep trade risk small (while still keeping account risk to 2% or less per trade) you can get started with a few thousand dollars.
Only look for stocks in a price range that you can afford, and that provide setups with trade risks that your account balance can accommodate. Don’t be lured into trades that cause you to risk more than 1 to 2% of your account capital (see Risk Management Mistakes that Ruin Traders).
Problem of Under-Capitalization When Swing Trading Stocks
Having more capital in your account is better than less. One big mistake traders make is being under-capitalized. In the stock market being under-capitalized can easily happen, especially when trading higher priced stocks. Let’s say you deposit $15,000, and have 2:1 leverage, effectively giving you $30,000 to trade with. You see a trade and decide to buy the stock at $210; the closest logical place for a stop loss is $200, $10 below your entry price. It’s a volatile stock so you expect that it could go to $270, resulting in a $60 gain per share in exchange for only risking $10 per share (for more on this type of basic strategy, see What to Focus on As a New Trader (video)).
Based on the risk/reward the trade makes sense, but should you actually be taking this trade with a $15,000 account? Let’s run the numbers.
Ideally, you should be trading in 100 shares lots (although this isn’t a requirement, just a suggestion), so the minimum position is 100 shares x $210 share price. The trade costs $21,000 and we have access to up to $30,000 in capital, so all good there. Just because we can afford a trade doesn’t mean we should take it; consider the risk to your account. With a $15,000 account we can risk up to $150 if risking 1% of our account, and up to $300 if risking 2% of our account.
But buying 100 shares with a trade risk of $10 puts us at risk of losing $1000! For this trade, we actually should have $150,000 (risking 1%) or $75,000 (if risking 2%) in capital. With a $15,000 account, you can take this trade, you can only afford to do it with 15 shares. If you lose $10 per share on 15 shares, you will lose $150, which is the maximum loss you should take, on a single trade, with a $15,000 account.
Money Needed to Swing Trade Stocks – Final Word
The quickest way to see how much capital you need is to use the followed formula:
trade risk x position size x (100%/account risk %) = Capital Required.
Assume you risk 1% of your account, buy 100 shares and your trade risk is $2 (buy at $38 and stop loss at $36). Plugin the numbers:
$2 x 100 x 100 = $20,000
If you’re willing to risk 2% of your account per trade:
$2 x 100 x 50 = $10,000
How much capital you need to swing trade stocks isn’t only determined by the price of the stock multiplied by how many shares you take. You also need to consider your account risk and trade risk. Each trade is slightly different though, with different trade risks and position sizes. Account for that when determining how much you will deposit. Study the stock charts, decide how and where you will enter and where you will place a stop loss. Then run the numbers. Will you hold multiple positions? Will you only trade stocks in a certain price range? Factor accordingly.
It’s better to wait a few months and save up more capital than to rush in under-capitalized and likely lose it all (practice trading while you save up: see How Long It Takes to Become a Successful Trader).
Cory Mitchell, CMT