Forex is the most liquid and accessible finical market in the world. Leverage makes it even easier to trade with smaller funds. So, how much money do you need to start trading forex? This is the first question you are going to face once you learn the basics of forex trading.
Actually, there is no right answer for that. It could be $500 or $1,000,000. A handsome trading capital is very important for a trader but a large capital does not necessarily bring you large profit. It could be the opposite. You should only risk the amount in a trade that you can afford to lose willingly. I mean the amount which is not going to cause you any financial hardship at home.
As a beginner, you are going to make a lot of mistakes and you are learning at the same time. So, starting your trading career with a large fund is not a good idea. This is because the lessons you will learn in the early stages of your forex career in relation to setting up trades, entering, closing and profiting or losing are not dictated by your starting balance. You can simply trade smaller lots and still have the same educational outcome whatever the end result.
Most forex traders lose a few accounts at their early stage, and that is very natural. You will learn to respect the market and learn to be disciplined in a hard way. But you should also preserve your capital for the future when you are going to be more mature as a forex trader.
It could take as long as 2-3 years to become a mature and successful forex trader. You can make consistency profit between 1-2 years if you have the right forex education and practice hard enough.
How much money do I need to put into my first account for trading forex effectively?
It depends on your trading style. I mean, what type of forex trader are you? Are you a scalper or swing trader? A day trader could start trading with as low as $500 to trade effectively, as they have smaller stops and profit target. But a swing trader might need a minimum of $1000 to trade effectively as their Stop Losses are usually wider than a day trader.
Most retail brokers offer a micro lot as their minimum trade size.
A micro lot equal 1000 (1k) unit of dollar. It’s 0.01 lot in MT4/MT5. Per pip differential is $.10 (ten cent)
A mini lot equal 10,000 (10k) unit of dollar or 0.10 lot in MT4/MT5. Per pip differential is $1
A Standard Lot equal 100,000 (100k) unit of dollar, which is 1 lot in MT4/MT5. Per pip differential is $10
So, now you can see if you risk 1% from a $500 account, which is actually $5. And with a .01 micro lot that is only 50 pips! On the other hand, for a swing trader might need more than 100 pips for a stop loss but their risk will be increased to more than 2% from the same 0.01 lot trading size! So, they need more trading capital than a scalper to simply give the trade room to breathe.
What should I do if my budget capital doesn’t give me enough room for Stop Losses?
$500 could mean a lot to you if you are a student or a trader from a 3rd world country like Bangladesh, India or somewhere in Africa. So you need to choose a forex broker who allow a ‘cent account’. What is a cent account? They credit 100 units against each dollar in your trading account! Therefore, you could have 10,000 cent balance against $100 deposit (you will have the trading ability of a $10000 account!). Now you can have enough room for your risk management. So, open a ‘cent account’ if your budget is lower than $500.
What are the best forex brokers with your budget?
Finding the best forex brokers come next once you decide your initial investment. Not all forex brokers would be good for you. You can compare and choose a well-regulated broker at Best Forex Brokers. Even you can compare brokers who allow ‘cent accounts’!
Can I trade forex for a living? How much money I can make from forex trading? Should I quit my job and start trading?
Yes, you can take forex trading as a career and make a living out of it. Trading is a long journey. Quitting your job depends on your trading style. As a swing trader, I spend only 30-40 minutes a day for trading. But I know many traders who spent more than 8 hours trading forex!
Trading for the whole day doesn’t mean they are making more money. I make 10-30% average on my investment each month (ROI) from only 5-10 trade setups. (I made 170% in April 2017, months like this are very rare. I will show you proof in comments section if you ask).
Anyway, you can’t trade for a living with a $500 account, you need a handsome trading capital for this.
First you should ask yourself how much money do you need for living?
And then, do the math of how much money your trading strategy (trading plan) can make each month? A strategy which makes 5% a month is a good strategy. Your strategy is great if it can make more than 10% profit in a month!
Let’s say, you need $5000 a month for living and your strategy makes 5% profit a month. It means you need $100,000 (100k) investing fund. You would need $50,000 (50k) if you make 10% a month. So, it depends on your forex trading strategy. And there will be months while you will earn less than your target percentage! So, adding some extra to your capital is helpful.
Last but not the least, a larger trading capital doesn’t ensure a higher profits. It could be the reason of losing big! Please, practice a 10K ‘cent account’ if you want to invest $10K in a normal account. Investing a large amount without a consistent profit making track record and great knowledge on forex trading is a bad idea. It takes time to become a professional trader. It’s been 10 years for me in the forex industry, I’ve blown more than 5 accounts in my first 1.5 years. I spent thousands of hours learning and practicing and focusing on my losses.
Wish you all the best for your journey to become a successful forex trader.
Shaon Bhuiya is a price action trader, Fund Manager, Coach and Forex Blogger. He is highly regarded for his unique ‘Core Price Action’ trading strategy. Learn more about him here at FxTemper. Follow him at Twitter @Shaon77