How much do you need to start Forex trading? It is probably the first question beginners ask before entering the financial market. The majority of newbies think they need to start with big money. Well, no. That's a common delusion. Besides, some brokers allow opening new trading accounts with a minimum deposit of $50 or even less.
Forex trading does not take as much money as you may think. On the other hand, there is an optimal amount of capital that beginners need to consider. Also, there is a chance to get extra funds as special rewards, bonuses, and other loyalty opportunities for the newcomers as well as returning investors. So, either you start Forex trading with $50 or $5,000, you need to know how to manage risks. Oh, and never forget the golden rule of investing.
The Golden Rule of Investing
Let's say you buy the stock at $60. You did the research and analyzed the market. The generated data convinces you that the stock will cost $100 in the nearest future. All you need is to lay back, wait, and sell it right on time to pocket the profit. Sounds like a piece of a cake, right?
There is only one problem. The financial market does not give a damn about your research or predictions. It does not care about what you think and feel. When you see a stock dropping down to $25, the Forex market says "Sorry, pal. You missed it". This is where the golden rule of investing comes into force: always try to cut your losses short. This is what actually the most successful Forex traders do.
Never wait until the stock rises by 20%-50% from the purchase price. Try to go shorter and sell it at a 7%-10% price increase. Despite the rule simplicity, a few investors stick to it. Moreover, some beginners are unable to set their ego aside and inevitably suffer from devastating falls they are unable to recover.
So, to cut your losses short, you need to:
- Put your ego aside.
- Get prepared both mentally and financially.
- Use tools to manage risks.
When we say "get prepared financially", we mean the balance. On the one hand, getting started with $50 looks safe enough even if you lose. On the other hand, having a financial handicap is good for a fast recovery and new order to be completed. Before answering the question "how much do you need to start Forex", you need to be well-aware of fundamental risk management tools.
Once you are busy with learning the basics of Forex trading, it's always a good idea to sign up with a trusted broker and get instant access to most powerful tools for trading. Open live or demo account now to be able to start whenever you are ready.
MTrading also offers help of a personal assistant to every client. No matter if you just wonder how to deposit or how to install a platform, we are here for you, in a Live Chat on our main page.
Way to Manage Forex Risks
You may be the most successful Forex picker with the best trading instruments delivered by the state-of-the-art trading platform. However, without Forex risk management, you have nothing to do in the financial market.
The weirdest thing is that actions to prevent huge losses are well-known and super easy. But for some reason, a few traders really use them. Why is it so? Well, most traders love playing big. They enjoy getting involved in risky investments using the leverage although the chances to lose everything right at once are generally pretty high. As a result, 90% of them are doomed to failure.
So, to prevent yourself from huge losses, you will need at least some of the baseline Forex risk management tools. They include:
- Control Your Losses – the idea is to know exactly when it is the right time to cut your losses. For some beginners, it is hard to resist the temptation and jump ship at a certain point. However, that mental stop is vital, as a trader observes his or her investments declining.
- Stick to Proper Lot Sizes – beginners should start with small lot sizes even if the broker promises to double your balance when trading lots of $10,000 and more. Always keep in mind that such an approach comes with even greater potential risk.
- Keep an Eye on the Exposure – some beginners make another common mistake. On the one hand, they trade lots of smaller sizes. At the same time, they try to trade multiple lots simultaneously, which is also a bad idea. Going long and short with the same trading instrument (for example, EUR/USD and USD/GBP) can cripple you. In this case, you are exposed to USD as the quote and based currency, which may result in a doubled loss.
Now when you know some risk management basics, it is high time we determined how much money you need to start Forex trading.
Possible Depositing Scenarios
So, is it better to start with a smaller balance or go big right from the start? Of course, initial funds will depend on your wallet capabilities and trading strategy.
If you are a beginner at a loss overwhelmed with ads and banners offering doubled revenues at minimum investments, have a look at three possible investing scenarios.
Trading with $100 on the Balance
Let's say, you open a new trading account and deposit $100. Experienced traders usually try to limit their loss risks by 1%. So, if you have $100 on your account, the loss limit is $1, which is about 10 pip on the entry price when trading popular currency pairs like EUR/USD. Even if you lose 11 pips, the total loss will be $1.1. Not so bad.
On the other hand, having a smaller sum on the balance also means smaller gains and profits. Once you have decided to go bigger, you will need to redeem extra funds from the profits you have generated earlier. In other words, you will need to invest your personal income. As a result, a good idea is to start with a bigger deposit.
Trading with $500 on the Balance
In this case, you risk losing only $5 per trade. On the other hand, such a deposit comes with more flexibility whenever you want to trade additional instruments. Even if you stick to a fixed stop loss of 10 pips, the risk of losing money with micro lots will never exceed $5.
Trading with $5,000 on the Balance
The bigger you go with your balance the more flexibility you have. A trader is able to trade multiple micro and mini lots simultaneously. On the other hand, you can lose $50 on each trade. Are you ready to take that risk? Do you actually have that money? Those are the questions you need to answer before making a deposit.
You can read more about lots in our article about position sizing.
It is up to you to decide either to go big or small. It is all about the trader's skills, expectations, and financial capabilities. While minimal deposit does not deliver enough flexibility, it comes with minor risks with a few chances to gain serious profits.
On the other hand, going too big is another mistake many beginners do. Most traders prefer starting with the average sum of about $300-$500. Such an approach comes with minor risks and higher possibilities to bear fruit.
If you are looking for an instrument to start trading forex, pay attention to this guide on currency trading. It will help to choose a proper currency pair for your first steps in trading.
Stay tuned to learn more tips and trading insights brought to you by MTrading.