One of the most important questions for a new forex traders is this:
How much money do I need to trade forex?
This is the first, and most important, issue you have to consider if you want to become a forex trader online. Of course, which broker you choose, trading platform or strategies to utilize are all very important as well – BUT deciding how much money you start with is the most important thing you need to decide.
First of all, sit down and go through your economy on an honest and detailed level. Make sure you always have enough for your monthly and quarterly outgoings. Never, ever dip into your funds for bills, rent, mortgages, food, or other necessities to trade online.
Ideally, you set up a specific bank account where your investment and trading funds are separated from the rest. You then top this account up as you see you can, either by a set monthly top-up after your bills are paid or on a random basis when you see you have extra to spend.
We recommend that you set up your budgets and get an accounting/budgeting program to assist you in this. Make sure you update it on at least a monthly basis and this way you can also keep track of your gains and losses in your trading.
What Kind Of Trader Do You Want To Be?
You also need to decide what kind of forex trader you want to be. Do you want to trade in Day Trade Forex? Or do you prefer Swing Trade Forex? Or maybe you feel more comfortable in Long Term Forex Trading. There is a lot to learn for beginners, and there are lots of wonderful resources online to help you navigate these terms and what they mean for you.
Day Trading In Forex
Very briefly day trading can be described like this:
Day trading usually refers to the practice of purchasing and selling within a single trading day.
It can cover in any marketplace, but it is most common in forex and stock trading. Professional day traders are typically well-educated and well-funded. They use very high amounts of leverage and short-term trading strategies to capitalize on small price movements that occur in highly liquid stocks or currencies.
Swing Trading In Forex
Swing trading is a short-term strategy for a trader who is buying or selling currency using technical indicators that suggest an impending price movement.
Swing trading can span any length of time, ranging from days to weeks. Swing traders place a heavy emphasis on technical analysis as a means of tracking a currency and determining when a “swing” is likely to occur. Swing trading generally means the trader isn’t concerned with the long-term value of a currency; they’re instead looking to profit from peaks and dips in momentum.
Long Term Trading In Forex
Long term trading is also known as positional trading, since it involves holding on to one position for an extended period of time.
Taking a long-term approach, also referred to as ‘big picture’ forex trading, involves keeping hold of a transaction for a long period while considering all the factors that affect specific currency pairs. When it comes to forex strategy, ‘long term’ refers to trades that can go on for days, weeks, months, or even a year or more.
How Much Should You Start With?
One of the most significant issues new traders face is being under-capitalized. The forex brokers have to take some of the blame for this by making it possible to open accounts for at little as $5 or $10 in some cases. The serious and trustworthy ones we find have a minimum opening balance of around $100 so that should be your absolute minimum. Some brokers do offer bonuses on your deposits which will give you more to trade with, just make sure you read and understand all the terms and conditions connected to these deposit bonuses.
If you’re like most beginner traders you want an additional income stream to bolster your regular income. So, logically you don’t get much of an income stream if you start with $100. Since very few people are patient enough to let their account grow, they will risk way too much of their capital on each trade trying to make an income, and in the process lose everything.
How To Gauge The Risk
A good rule of thumb, in the beginning, is to only risk 1% of your capital (maximum 3%) on a single trade. Meaning that if your account is $100, you can only risk $1 per trade. And as you can see, that will not get you very far.
This will build your account slowly, but most traders don’t want to make a couple of dollars a day, they want to build their account much faster. So they risk $10 or $20 per trade, even as much as $50 in an attempt to turn that $100 into $1000 quickly. This strategy might even be successful for a while but usually results in an account balance of $0 when something happens and the market fluctuates in a way you can not predict, or something happens when you are not watching.
New traders are better off saving up more money before opening a forex account, thus adequately funding their account so they can trade properly.
Conclusion: It Is Up To Each Individual
It would be very presumptuous of us to say what is right and what is wrong for forex traders to start with. You will find success stories of people who have started with $100 and massive losses where they started with $10 000. You have to know your personal economy enough to know what you can spend, and we recommend you spend a little less than that. Always have a buffer for unexpected events in your life that may need fast injections of funds. Never invest more than you are willing to lose and most of all do your research so you KNOW what you are doing.
Find a broker and a platform you trust and you feel comfortable in using. Be active on the platform and keep track of your trades. Do not overstretch your positions, and play it safe until you are comfortable and have made some headway in increasing your trading account.