The minimum amount you'll need to trade in forex is one essential issue that must be taken cared of if you want to be successful in forex trading.
The kind of forex company you decide to choose and your trading strategy is important as well, but the minimum capital you decide to start with will be a very important determinant to your success in the forex market on the long run. Among other things that must be considered when trying to decide the minimum amount of money a trader is to trade the forex market with is the goal in view.
WHAT IS THE MINIMUM AMOUNT I'LL NEED TO START TRADING FOREX AND WHY IS IT IMPORTANT?
Is it really important if you start trading with $50 or $5000? One main problem new traders have is insufficient capital. Some forex companies give traders the opportunity to trade with meager amounts such as $5 in some case; although the minimum opening balance is usually about $100.
To be factual if you want to start trading, you income wouldn't be coming in properly if you start trading with $100. Most traders are not patient enough to let their account grow, they will decide to invest all their capital without weighing the risks and therefore they end up losing all their income.
It is always wise to risk just 1% of capital or a maximum of 5% on a single trade. If your account is $100, it means you can only risk $1 per trade. In the forex market this basically means you can take a one micro lot position whereas each pip movement is worth about 10 cents, and it is important you keep the risk to less than 10 pips. If you trade like this coupled with a good strategy you’ll make an appreciable amount as profit by the end of the day. Some are so desperate, they want to build their account much faster and therefore will risk around $20 per trade–sometimes more–in an attempt to turn that $100 into a huge amount as quickly as possible. Though this may work for you but you end up losing everything eventually.
Another major problem with forex trading with such a meager amount of money is that there is no flexibility in your style of trading. For instance if you deposit $100, and you follow proper risk management protocols, you can only risk 10 pips if you take a 1 micro lot position. This will push you to be an active day trader, whether you want to day trade or not.
With a 10 pip stop loss you won’t be able to engage in swing trading or invest, since the price can easily move 10 pips against you, resulting in a losing trade, if you try to hold out for long-term profit.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.