If you have decided or are still considering becoming a professional trader, you are probably asking yourself questions such as how much money is needed for Forex trading and how to start Forex trading?
This article will address these issues and more, providing you with a starting point on how to trade the Forex market, what types of trading accounts you should consider, how to manage risk and finally of course: how much money is needed for Forex trading in 2019?
How to start Forex trading?
There are a stunning set of questions and variables to consider when before you start trading the Forex market. Here are the main ones:
What are the reasons to start trading?
How much time can you spend on Forex trading?
How Much Can You Afford To Invest In Forex Trading?
Will you be a fundamental or technical trader? Or maybe, a combination of the two?
How much risk are you willing to take in Forex trading?
Will you trade in the short or long term?
Will you trade with a strategy based on strict rules or will you take a freer approach?
There are a lot of questions, but in the end they determine what you will aim for in the markets and how you will trade. But you can break them down into even more specific directions.
Why you want to trade is the first big question during the journey to becoming a professional trader. No matter what your goal is, it is vital to be able to express it clearly. Even just in front of yourself, no matter how trivial it may seem to you.
A clear goal will help you focus on answering the questions that follow. Without answering the question why, will you spin in a circle while trying to answer the question of how much money do I need for Forex trading?
The answer to the question: how much time can you spend on Forex trading is vital for your future success in the financial markets? Do you want markets to be your main source of income or will they be your second? In addition, in both cases it would be good to spend some time on Forex training.
Take a short break for reflection. Write your thoughts on a piece of paper. You can make this paper the first page of your Trader’s diary and start here. Only from these answers can you get to how much money is needed for Forex trading. If you want to earn your income through this, it is very likely that you need more start-up capital.
The psychological factor is also part of the game. Research shows that the amount of trading capital can affect your trade. Larger balance sheets require more caution among traders and this leads to more time spent analyzing the market before opening a position, fewer trades undertaken over a period of time and more modest leverage. But, there are, of course, gambling-type traders who become more careless when trading with a larger amount of money.
If you want to test Forex trading without risking your own capital, you can open a free demo account with Admiral Markets. The demo account will allow you to gain some experience in the financial markets in a risk-free environment.
Big or small amount of money?
Let’s look at the Forex market for a moment. The size of the foreign exchange market has been widely discussed, but the fact that both large and small participants trade together is often overlooked. There is room for everyone at the table due to the surprisingly low barriers to entry. High levels of leverage allow small deposits to manage significant positions.
In short, this means that you can make deals without tying a lot of your money. Obviously, you should never trade with more money than you can afford to lose, but with too little money you can make satisfactory profits in most cases, and you can be eliminated from the markets much more easily.
However, leverage also offers many trading opportunities to participants with lower deposits and can increase profits. But at the same time it increases the risk for those who use it unwisely.
“How much money do I need for Forex trading?”
There is the question of how much money you need to have to open a trading account and the answer to this question varies for each broker and for the types of accounts. Different brokers often offer different types of accounts, but you will often be able to open an account with a broker for a small amount. For example, to open the popular Trade.MT5 account you will need only $ 200.
This account offers you low spreads, fast execution, trading with over 8000 financial instruments such as currencies, stocks, indices, commodities, bonds, ETFs and cryptocurrencies.
If you are specifically targeting currency and commodity trading, the Zero.MT4 account is what you are looking for. Spreads starting from 0 pips, liquidity from the largest banks, market performance, full transparency and no restrictions on trading strategy. You can open a Zero.MT4 account by clicking on the banner below.
How Much Money Does Forex Trading Need?
In terms of positions, don’t trade more than you can afford to lose. When considering how much money to start Forex trading, it is a matter of personal finances and your own attitude to risk. Trading can often be a nervous and stressful experience.
An easy way to alleviate this is to trade conservatively. This will help you deal with the unfavorable moments.
Let’s look at an example to understand what we are talking about. A reasonable rule of thumb is that you should not risk more than 1% or 2% of your venture capital in any transaction. For convenience, let’s use 1%.
The minimum amount of trade with Trade.MT5 account is 0.01 lots. Lot is the standard size of the transaction for each currency pair (1000 0000 of the base currency). Let’s say you decide to buy 0.01 lots of EURUSD. This is a position that means you make or lose $ 0.1 for each move. The margin for this small position will be covered by your minimum deposit.
Here is the key point – quantifying the risk associated with individual trade is not always an easy task. We can say that the risk is the amount of losses you could endure before closing the position. However, this probably underestimates the risk, as you may subsequently change your mind and tolerate a greater loss. There may also be times when the market is moving faster than you can react.
Risk / profit ratio
One way to try to draw a line below the position and determine the risk is to use a stop loss. But keep in mind that a conventional stop order is not guaranteed. Stop moose becomes a market order once its level has been reached. In the case of a highly volatile market, this means that you may be subject to slippage. Slippage is the difference in pips between the price at which your stop loss order is executed and the one you originally set.
In short, a stop loss does not mean that the maximum loss is guaranteed to be that much, but this order gives you a rough and useful idea of the risk under normal market conditions. Suppose you stop at 80 pips. For our rough estimate, we can say that the theoretical risk is 80 pips x 0.1 USD per pip = $ 8.
If we assign a theoretical risk of $ 8 to this trade, and also say that one trade is 1% of our total venture capital, then the total venture capital should be $ 8 x 100 = $ 800. This is because the minimum transaction sizes are so small that you only need a small amount to start trading Forex. These are just some sample numbers, of course.
If you have worked with tighter stops, your risk capital will be even smaller. If you are working with wider stop loss orders and / or a larger transaction size, you will need more venture capital.
Here’s another way to look at how successful trading means profits in the long run. To win in the long run, you do not have to be destroyed in the short run.
Still want to know how much money is needed for Forex trading? Simply put, you need enough to avoid bankruptcy. See the price collapses that have occurred historically in the currency pair of your choice. Think about what these movements would mean with your average trading size. Make sure your venture capital is large enough to withstand such price shocks.
Once you have started your business and are able to achieve a stable return, it may be time to consider how much money is needed for full-time Forex trading. If you are trying to figure out what the realistic monthly return for a trader is, you will start trading volumes that are much higher than the usual lows. Therefore, your risk capital must also be higher.
How much money do you plan to make for a certain period of time?
Think of an amount. Per month. Annually
Ambition is usually a good thing, but when it comes to trading, unrealistic expectations can put pressure on you and distort your perception of the market and ultimately lead to poorer results.
The important thing in this case is not how much money you need for Forex trading, but how much money you need to open a Forex account and trade safely. The more you want to earn, the more you will have to invest to keep the risks at reasonable levels.
The level of risk is something that traders must judge for themselves. Here’s how it works.
Let’s say you decide to never risk more than 1% of your account balance on a trade, which is quite reasonable. If your account is $ 1,000 and has a leverage of 1: 100, that means you can only risk $ 1 per position. From the point of view of the Forex market, this means that you can enter into trades with one micro lot or 0.01 lots or the value of 1 pips in most cases will be around $ 0.10.
In addition, to meet your own conditions to maintain a risk level of 1%, you can not afford to absorb less than 10 pips. This is because with a profit below 10 pips, the risk / return ratio will be below 1: 1, which is not profitable enough. Most traders pursue a risk / return ratio of at least 1: 2, even 1: 3.
One of the main problems with Forex trading with such small financial resources and such a strict risk is that you are limited in the flexibility in choosing specific trading styles. In this example, you are required to adhere to intraday trading, but you may have neither the time nor the setting for this type of trading.
How to start investing in Forex – conclusion
And now let’s summarize the main points of the article and understand how to start investing in Forex and how much money is needed for Forex trading for a novice trader.
Lack of Forex training, unrealistic expectations and insufficient funding are some of the main sources of risk in Forex trading. The use of leverage can provide a trader with the leverage to participate in financial markets with more capital than he has. But leverage can be a double-edged sword, especially with improper risk management.
If you start conservatively and use prudent capital management, you do not need a large amount of money to trade the Forex market. It is possible to start trading with only a few hundred euros, provided that the size of the transactions is not very large.
Here are some tips for novice traders just entering the world of Forex trading:
Find out the reasons to start Forex trading.
Find out how much time you can spend in the markets.
Set precise and clear goals
Choose the right trading style
Consider how much you can afford to invest.
There is something else that is good to consider – people who succeed in trading work very hard for it. The more effort you offer, the more likely you are to become a successful trader. So when faced with a new, challenging endeavor, the only right option is to learn more about what you are embarking on.