One of the first questions you’ll have to answer if you want to become a forex trader is how much money you’ll require. The broker you choose, the trading platform you use, and the technique you use are all crucial, but the amount of money you start with will have a huge impact on your overall success.
However, not all traders are the same, and not all traders trade in the same way. A day trader may not require as much capital to begin forex trading as a swing trader. Your ambitions will also affect the quantity of money you’ll need to trade FX. Do you want to just expand your account or do you want to make a consistent profit from your forex trading?
Why Does It Matter?
Before we get into how much money you’ll need to trade forex successfully, let’s take a look at why this is such a big deal. Is it really that important whether you open your account with $100 or $3000? Yes!
One of the most serious problems that new traders confront is a lack of capital. Forex brokers contribute to this climate by allowing customers to open accounts for as little as $5 in some cases…despite the fact that the minimum opening balance is normally about $100. (For further information, see How to Choose the Right Forex Broker.)
Let’s face it: if you’re considering trading, you’re probably looking for a way to supplement your income. If you start with $100, you’re not going to have much of a revenue stream. Because few people have the patience to let their accounts grow, they will risk far too much of their cash on each trade in the hopes of making money and will lose everything in the process.
I believe that you should only risk 1% of your capital (maximum of 3%) on a single trade. If you have $100 in your account, you can only risk $1 for each trade. In the forex market, this implies you can take a one micro lot position (see Calculating Pip Value for more information on other lot sizes), where each pip movement is worth around ten cents, and you must limit your risk below ten pips. If you have a decent plan, you can make a couple of dollars per day trading this manner. While this method will gradually increase your account balance, most traders do not wish to make a few dollars per day, they want to grow their account as rapidly as possible, so they’ll risk $10 or $20 per trade–sometimes even more–in the hopes of turning $100 into thousands of dollars as quickly as feasible. This may work for a short time. however, it frequently leads to a zero account balance.
Another issue with trading forex with such a tiny sum of money is that it provides almost no flexibility in terms of the type of trading you may do. If you deposit $100 and follow proper risk management rules, a 1 micro lot position will only expose you to a risk of 10 pips. Whether you want to day trade or not, this pushes you to be an active day trader. If you try to hold out for long-term gains with a 10 pip stop loss, you won’t be able to swing trade or invest because the market can easily move 10 pips against you, resulting in a losing transaction.
New traders should save up more money before creating a forex account, ensuring that their account is appropriately funded so that they can trade correctly.
How much money do you need to start trading forex?
If you want to day trade forex, I recommend starting with a deposit of at least $2000, preferably $5000 if you want to make a solid living.
You may make $60+ every day with a $3000 account and a risk of no more than 1% of your account on each trade ($30 or less). With a $5000 account, you can risk up to $50 for every trade, implying that you can make a daily profit of $100 or more.
This is achievable because, if you risk 10 pips per transaction, you can take a position size of 5 mini lots ($1 per pip movement), which will cost you $50 or make you $75 depending on your average gain of 15 pips. Of course, you won’t win every transaction, but if you win three out of five, you’ve made $125. You make more on certain days and less on others.
So, with a $5000 account, you may begin to build a respectable daily income stream. Allowing the account to grow to $10,000 can earn you around $250 every day. Of course, these are just estimations; you may get a better idea of your personal earning potential by practicing in a demo account and tracking your progress before investing single real money.
Starting an account with a smaller sum, such as $500, is possible, but you must commit to growing the account for at least a year before withdrawing any funds. If you do this and don’t risk more than 1% of your account on each trade, you can make roughly $10 per day, to begin with, bringing your account up to a few thousand dollars over the course of a year.
Final Thoughts on How Much Money Do I Need to Trade Forex
It’s critical to be realistic about your forex trading expectations. The amount of money you deposit has a significant impact on how much money you will likely make if you use good risk management. If you’re ready to build your account slowly, you can start with as little as $500, but no matter what sort of trading you conduct, starting with at least $1000 is recommended.
We recommend starting an account with at least $3000 for day trading and $4000 for swing trading or investing if you want to make money from forex trading. Play around with the scenarios to find an acceptable level of income and deposit.
Almost all of your wealth is safe, you can simply recoup your losses, and you’re back to producing money in no time.
The scenarios above imply that your average profit is 1.5 times your risk (or higher) and that you win roughly 60% of your bets. This is not always easy to achieve on a regular basis. Your personal trading approach will have a significant impact on your profitability (or lack thereof). However, the amount of money you use to trade forex will have a big impact on your ability to fulfill your trading objectives.