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The foreign exchange market, commonly known as forex market, is a global financial market that enables individuals to trade and invest in foreign currencies. It is a lucrative market but comes with its share of risk. So the big question is, how much do I need to start forex trading?
The amount you need to start forex trading depends upon what type of trading you are interested in and what your goals are. You can either indulge in day trading or swing trading.
Day trading is buying and selling within the day or multiple times in a day, whereas swing trading lasts for several hours, days or weeks.
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How Much Do I Need to Start Trading?
The first thing you have to decide is what type of trader you want to be. This determines how much capital you need. Swing trading needs more capital than day trading.
When you start trading, your goal should be to create and test trading strategies that allow you to scale it up to appropriate position sizing. This will give you an opportunity to earn regular cash flow from your skill.
In forex trading, you can trade micro-position sizes. The smallest portion size one can have in forex is known as micro lot. This is 1000 worth of currency. A micro position of $1,000 will allow you to test your trading ideas on small positions such that if you lost ten trades in a row, your account would still be intact.
Traders also have the option of going for leverage. It is to borrow funds to expand one’s trading position. Brokers provide up to 30:1 leverage, which means you can take a position as large as 30 times your capital.
Factors to Consider for Deciding the Amount
1: What is a stock?
Consider the following factors when deciding the capital for trading:
Minimum Deposit
There is no universal standard for the minimum deposit amount. The minimum amount required for forex trading depends up on the broker you choose. Some brokers let you start with no specified minimum deposit. This makes trading accessible to a wide range of traders. Some forex brokers provide recommendations for an initial deposit amount based on the currency pairs that traders intend to trade. This approach can be helpful, especially for individuals who are new to forex trading.
Welcome Bonus
Many forex brokers offer welcome bonuses to attract new traders. They can be in the form of no-deposit bonuses or deposit-matching incentives. Even though these bonuses may sound attractive, traders should carefully go through the terms and conditions to fully comprehend the deal.
Modest Capital
It is advisable to start with a modest amount. This will help you gain experience, evaluate your risks, and judge your potential to make profit or loss without exposing a huge capital.
Risk Management
This is very much important to become a successful trader. Establish a stop loss order that limits the amount of capital you are willing to risk on a given trade.
Leverage
Even though it may sound tempting, leverage can be risky. When starting out, you should consider your risks and you should not lose more than one percent of your capital on any single trade. You can use stop loss to control your risk. Beginners should use low leverage to minimize risk. A 10:1 or lower leverage ratio is a good option for beginners.
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How Much Do I Need for Day Trading?
The specific amount for day trading on forex is a personal decision. Newer traders typically have lower opening capital and prefer to start with small contributions. It is possible to start forex trading with as little as $50.
The flipside is, if your starting amount is $10, this may prevent you from getting high quality, regulated brokers. Brokers require $1,000 minimum account balance requirements.
It is good idea to start with a low amount, but it should not be that low as the results will be less motivating. You should deposit only the amount you can afford to lose them. You can test your strategy with the minimal amount until you feel comfortable trading.
How Much Do I Need for Swing Trading?
Swing traders generally use 30 to 60 pips to stop losses. The very lowest you can open an account with is $500 if you wish to initiate a trade with a risk of 50 pips. You can risk $5 per trade, which is 1% of $500.
Conclusion
How much money you put into forex depends on your trading plan and risk tolerance. It is advisable to start small and only take on a risk you can afford to lose. Keep the losses small, so that you can get back and try again. As you gain experience, you can raise your capital.
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