how-much-capital

How Much Capital Does A Day Trader Need

Working Capital needs come out of your firm’s requirement to meet cash needs. This is of course not the type of business finance and funding that you need when you acquire assets such as equipment.

How then can the Canadian owner and business manager determine the amount of cash flow needs, as well as the best way to solve the problem… i.e. a solution!

The way to do that is to spend some time on whets known as your ‘ trading cycle ‘… aka ‘ cash flow cycle ‘.

It’s all about understanding how your payables arise and how the products and services you purchase translate into either inventory or direct to sales. And here’s the secret – the speed, or total time it takes for all that to happen in effect determines your cash flow and working capital funding needs.

To make the actual calculation work you need to look at turnover in your receivables, inventories (if applicable) and payables. Payables are of course ‘ cash outflow ‘but still very important in our calculation.

Most business owners or financial managers probably intuitively know how long it takes them to collect their sales receivables . The days of sales you have tied up in receivables is calculated by taking your average A/R balance and dividing it by your average daily sales. Hopefully every business owner has quick access to that data… if he or she doesn’t we suggest… there’s a problem!

Not every company has inventory, but if your firm does the amount of additional product you have to carry translates into extra cash need.

 Capital

Remember also that those two asset categories, receivables and inventory are your main borrowing collateral in working capital funding. Also note that typically with a standard bank arrangement you can typically borrow 75% of your total receivables and (hopefully) some type of percentage against your inventory.

One of the alternatives to traditional bank financing in Canada is asset based lending – here it’s important to note that typical a/r advances are 90% of total a/r, and a healthy borrowing base against inventory . (Every company and industry is a bit different when it comes to inventories).

It’s a truth in Canadian business that if your business is growing it needs money. And don’t forget that a lot of businesses also have to juggle seasonality of sales and buildups in A/R and inventory. Think of it this way – Receivables Eat Cash! Thats one reason why high growth companies that seemingly are making money are in huge negative cash flow problems that need to be addressed.

How does the Canadian business owner address these challenges? The solutions are readily available:

Receivable Finance
Inventory Financing
Supply chain finance
Asset based lending
Tax Credit Monetization

Speak to a trusted , credible and experienced Canadian business financing advisor when it comes to determining both what your working capital and business finance funding need is, and .. where to get that problem solved!

Frequently Asked Questions

  1. QUESTION:
    Y does Obama want 2 raise Capital Gains tax for day traders and ppl selling off property 4 huge profits?

    • ANSWER:
      Day traders don’t qualify for capital gains taxes. Their profit, if any, is treated as ordinary income.

      About 60% of the net worth of the “typical” American family is based on the net value of its home. Under present law, the first 0,000 of a capital gain a couple realizes from the sale of their primary residence is exempt from capital gains taxes. That’s a nice “stake” for a couple moving into retirement. But there’s just too much money there for a tax hog like Obama to ignore, so he’s looking at how to lower that number.

      Obama is also looking at an “exit tax,” which would confiscate a portion of the assets of a citizen who decides to leave the country to live elsewhere. That’s what the government of South Africa did during the days of apartheid. Hey, even the worst people sometimes come up with good ideas.

  2. QUESTION:
    when are you considered a day trader?
    I am curious about the stock market and I want to try it just to have fun, I have a steady income and I don’t plan to play with a lot of my money, I still would like to know how to avoid becoming a day trader, I know you have to make 4 or 5 transactions a week to be considered one but I just don’t want the extra work of taxes implications and such. Now, if I do make some money ( don’t laugh) do I have to include it in my tax declaration and how?. Thanks.

    • ANSWER:
      Profits from day trading are treated the same as any short-term capital gains – they are essentially added to your income, and taxed at that rate. At the end of the year, when you’re filing your taxes, your broker will send your a profit/loss statement totalling your trades, with which you can declare income. It’s all rather cut and dried.

      Just to point out, tax considerations should be entirely secondary to actually earning a profit through day trading. It’s a lot harder than it looks, since the only ones who do it are the ones who have mastered it – rather like poker players.

      Oh, and don’t use a discount online broker like Ameritrade or Scottrade – they charge too much and are too slow for day trading. Use a direct-access broker like MB Trading. They charge [FAQ-ANSWER].01 (one penny) per share, and give you direct access to the stock exchanges, rather than direct you through their brokerage.

  3. QUESTION:
    Day Trader information?
    Okay, I know this is far fetched. I am 18. Been investing since I was 15. Turned 0 into 00. Mostly through Citi Bank. I love the market.

    I use Zecco. What’s the best site for a frequent trader? 3+ a day. They Charge .50 each. 10 free after 15. I have a value around 00.
    Also in Zecco it takes a day, some times 2 days to settle funds to be able to used else where. Is that true everywhere?
    Also where do good investers get the ideas for small penny stock day trading. I mean the ‘list’ of the companies, then they go from that and analyse them.

    • ANSWER:
      All brokerage firms in North America post security transactions as of the settlement date of the trade – the settlement date being the third business day following the trade date.
      So this is not a Zecco policy, it’s the rules governing the posting of transaction set by the SEC and the Federal Reserve which must be followed by ALL brokerage firms in the United States

      It’s very hard to day trade penny stock since they do not trade in a regulated market and most major firms do whatever they can to discourage their customer from dealing in stocks that do not have an open market, and present difficulties in clearing and storage.

      When you invest/trade in penny stock you should never put up more than you can afford to loose and you should assume you will loose it all. Unlike regular securities, penny stocks usually do not let you use risk cutting procedures (options and/or stop orders) since most are not traded in a regulated market place.

      They say when you buy securities you have a 50%-50% chance of making money, when you buy penny stocks you have a 50-50-90% chance, 50-50 chance of making money and a 90% chance of loosing money.

      When buying penny stocks, like any other security investment, you never invest 100% of you investing capital. Penny stocks are fun to trade, but you should never count on them to be considered part of your primary investment objectives.

      All that said, here are some websites that you will find helpful
      http://www.smallcapinvestor.com/
      http://www.stockwire.com/
      http://alphaking.com/
      http://www.otcstockexchange.com/
      http://www.mcapstocks.com/Default.asp
      http://www.pinksheets.com/pink/quote/index.jsp
      http://ragingbull.quote.com/cgi-bin/static.cgi/a=index.txt&d=mainpages

      HEY “CHIEF”, there is no account in the brokerage industry titled “day trading Account” Day trading is an activity and not a special account, and if done properly it can be done in a cash and/or margin account.
      AND the ,000 is NOT a “balance requirement but if you’re tagged as a “pattern trader (not a day trader) you need a margin account AND maintain ,000 of equity (not a balance) at all times.

  4. QUESTION:
    Day/Equity Trader Job?
    I have a little bit of experience as a Broker, but I am looking into becoming a remote Day/Equity Trader.

    I have done some research but thought I could get first hand info here.

    – I wanted to know if there are any “Major Firms” or “Reputable Firms” that offer remote trader jobs, and will hire a new trader in the fashion.

    – Do all firms require a deposit to trade the firms capital? or are there any firms that you can name that do not require this for a remote trader?

    Thanks for your time.
    It would be greatly appreciated if you can email me or pm or list the companies that apply.

    • ANSWER:
      As a broker, you can not become “a remote day trader” – its illegal.

      Not sure what you mean by you’ve “done some research..and you could”get first hand information here”. There is a very big difference in being a “Rep” and being and trader and there’s at least 30 IQ points difference.
      You need to study the various markets, the products traded in the markets, and the rules governing the markets

      No “major firm” is permitted by law to offer “remote trading” to any one, and no reputable firm would offer such.

      Only bucket shops would let a “broker” or any other non-experienced trader, trade on their capital.

      If you believe you can trade, just open a personal account for trading through your firm – but make such you have permission from your Compliance officer.
      Yes you have to use your own capital, but if you are as good as you believe you can make a lot of money legally.

  5. QUESTION:
    Day Traders, how much are you guys making?
    I’m curious how much money successful day traders at varying experience and capital levels have been making. What kinda percentage stock price increase and profit margins do you guys aim for?

    I’ve been getting my feet wet with day trading. I have a 50k cash account (margin approved) and am merely looking at covering my monthly living expenses of less than 00. While I understand that it’s risky, from my observation it doesn’t seem too hard to identify a stock at a point where it’ll move up at least 0.25% which would mean a 5 profit when trading k worth of stock. I could meet my monthly living expenses through 8 good trades…or perhaps 4 if the stock goes up 0.50%. It’s common to lose money when you start out with day trading and I have actually lost money but I’ve already recovered a substantial portion of that for a net loss of “only” ,000 so far. Patience is a virtue with trading and I’ve moved up subtantially in that respect.
    I should’ve added perhaps that I didn’t lose the money during day trading. Day trading is how I’ve made some of the lost money back. I started out not really being sure what I wanted to do. I was going somewhere between swing trading and investing. I purchased stock and intially made ,000 on it only to see the profit disappear and turn into a loss a couple of days later. Now I know I should’ve taken the profit and run! Even though I’m focusing on day trading now I have kept a stock overnight to turn a loss into a profit or increase the profit. I’ve always been told how I’m very analytical and I think that could make me be fairly successful at this. I very much enjoy studying the charts, watching pre-market volume and general behavior as well as reading the news. Yes, it’s fun but right now also quite fun. I’m not stressed about the relatively small financial loss. I’m managing to keep the cool. And yes, I’m generally aware that success will be measured by gains versus losses.

    • ANSWER:
      A good “day trader” can lose 50% – 65% of their trades.
      (That’s not newbies… that’s experianced traders).
      The real key is the win/loss ratio. It is resonable that you could meet the goal you’re shooting for.

      You would need to understand and use;
      Technical Analisys.
      Money Management
      Position Sizing
      Trader Psychology
      A “system” (created by you)
      DISIPLINE
      Always use stops
      Always have an exit plan before you take a position.
      Always have a clearly defined reson for taking the trade (feeling, hoping, expecting a stock to move doesn’t count).

      The typical, successful trader takes 3-5 years to get to this point. 96% of new traders fail to get past the 3rd year.

      This is hard work. You have to be reading books all the time. Taking seminars & webinars.

      Start with;
      Trading In The Zone, Mark Douglas
      Mastering The Trade, John Carter

  6. QUESTION:
    I am looking for a job as a day trader for a firm. How do I go about getting this type of job?
    What requirements are needed to get a job as a day trader for a firm that gives you access to their capital?

    • ANSWER:
      Reputable firms do not hire DAY traders, they hire traders. Day trading is a result of a firm’s current capital situation and/or the current market.
      Individuals that “day” trade have in depth experience of the market place, the products sold and most importantly know the rules and regulations that govern trading.
      No one get’s a job as a trader, unless they have years of experience. Usually traders start out as clerks in tradng or P&S departments, or “running” tickets on the floor. There are no “trainees”, just people willing to bust their butts to learning all they can about trading and the P&S cycles.

      All traders, except fixed income, have the same basic make up. They are all above average intelligence, good at math, outgoing personalities, and not wrapped too tight.

      Many have college educations, but it is not a requirement, unless you want to work for a bank and/or mutual fund company who do require degrees even though there are no academic courses that can prepare one for trading.

      You should have some basic understanding of finance, accounting, and economics. It would help if you know the various markets, what products are traded in those markets and how trading is done. This will require some of your own education and willingness to study hard on the path to becoming a trader.

      There is no such thing as a trader trainee or training programs. Those that end up in trading had taken jobs in the trading departments and have worked themselves into trading. You don’t worry about salaries, or what jobs they have you doing, you just do it since it’s a way of learning or getting the shot at being a trader.

      Traders work as long as the markets are open, they don’t stop and unless it’s to get a drink, (and traders are known for that) they just keep going so you never complain about the hours or the working conditions.

  7. QUESTION:
    What is being a day trader like?
    I am just a little interested in buying and trading stocks for a living. It seems fun in my opinion, but is it really all that its cracked up to be? Like is it anything like the movie “Limitless” working for a company like that? And where could i learn how to get into the buisiness and learn how to do that stuff?

    • ANSWER:
      Day trading stocks has never been easier thanks to software leveling the playing field.

      But, trading is not for everyone.

      Here’s what I’ve learned you need to become a big money winner:
      1. Learn to day trade “new-school” – new strategy, new tactics, new trade execution skills, and so on.

      2. Trade with a master trading coach, preferably a day trading coach as holding overnight can be a killer.

      3. Focus on winning, learning to win, just like any world-class athlete – not the money.

      4. Have adequate risk capital. I recommend daytrading with a K account, minimum, optimally 0K +.

      So there you go.

      Want more information visit: www.DayTradersWin.com

      John

      John McLaughlin, StockCoach
      Day Trader, Day Trading – Consultant / Coach
      949-218-4114

  8. QUESTION:
    How much tax does a day trader in the UK pay?
    how is it fully calculated and is their more than 1 tax rate to pay?

    • ANSWER:
      Day trader is a little tricky as it ccan be unclear whether it is Capital Gain or income.
      Self employed people must register for Self Assessment – account set up by HMRC – number sent out, register on line – password by snail mail.
      You must have a business bank account, keep records and submit a tax return each year.

      For income you get an annual tax free allowance, then you pay 20%, if you earn over 32000 + allowance you pat 40%, there is a top rate tax of 50%

  9. QUESTION:
    how does a day trader pay tax?
    do they pay by simply pay tax on (net capital gain for all trades in 2009 – net capital loss for all trades in 2009 ) at the end of the year?

    • ANSWER:
      There are two ways and it depends on your definition of day trader. To be an actual day trader for IRS you have to have more than 600 trades for the year and it must be a substantial part of your work day. If you have a fulltime job in addition then you would have a hard time claiming a day trader in an audit. Technically the IRS has no definition of day trader. It comes from past lawsuits. The first option is to claim every trade on a schedule D. If you are a day trader and you elected mark to market on last years return then you can file a schedule C instead.

  10. QUESTION:
    Pattern Day Trader, Stock Settlement Day, etc..?
    Here are my details:

    – Cash account (will transfer to margin account if needed)
    – Over ,000
    – Objective: Day trade as much as I want

    Q1: In a cash account (+25,000 USD), am I able to day trade at will?
    Q2: If not, what is preventing me from doing so?
    Q3: In my situation, would a day trade settlement date settle *right after* I sell X stock? (To allow me to day trade at will)

    • ANSWER:
      Before even thinking about day trading you need to master the concepts of daily trading. Day trading is like Pac Man Level 10.

      An introductory book like _Stock Markets for Dummies_ is a good place to start. This will give you a basic explanation of most things there are to know about the mechanics of stock investing including useful websites to surf and full-service vs. self-directed brokerages.

      Investors Business Daily (IBD) is a solid daily resource (and its complement, www.investors.com ). It’s a better newspaper than the Wall Street Journal and it is built around a particular approach to trading. You could read _How to Make Money in Stocks_ by William O’Neil too–he’s the founder of IBD.

      Search your local library for other books on stock investing. Try to absorb as much knowledge and understanding as you can.

      After you have extensively researched and gained a solid foundation/education then look to open a brokerage account and paper trade–this is trading with play money before you put real capital at risk. You should do extensively before you eventually place your first trade live. Your early live trades should be with a very small position size. Only increase position size when you have done well to limit losses when the market has turned against you.

 

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