How much money do I need to start forex trading? It is a frequently asked question by forex beginners. The forex market is the most accessible market in the world, and it fits different trading abilities. With an initial capital as low as $50, or less, anyone can easily start forex trading. But first, let’s have a quick on how forex trading works.
What is Forex Trading?
The foreign exchange market, or forex market, is the most traded financial market in the world. The forex market is a global marketplace where financial institutions, banks, and investors can speculate on currencies. It is considered to be the largest and most liquid financial market in the world, with an average daily trading volume of $6.6 trillion. The forex is a decentralized market as all trading is done online, known as over-the-counter (OTC) trading.
Foreign exchange is the process of exchanging one currency with another. This is a common financial process that can be performed for commercial or trading purposes.
Forex trading is the speculation on currency prices for potential profits. Since forex trading is primarily exchanging one currency for another, currencies in the forex market are traded in pairs. The currency pair is a quotation for one currency against the other; known as quote currency and base currency. Currency pairs are affected by different fundamental and technical factors that affect the exchange rate. These factors include economic policies, political stability, trade flows, and of course the changes in supply and demand.
What is the Right Amount to Start Forex Trading?
The minimum amount of money you need to start with should be consistent with your goals. Other factors to consider are your trading style, your broker’s minimum deposit requirements, level of experience, and risk exposure. In any case, you should never risk what you cannot afford to lose.
Disadvantages of Starting with a Small Capital
- Small investment capital means small lot sizes, fewer opportunities and limited profitability. A trader can get frustrated by small gains and probably give up trading.
- Trading costs can significantly affect your trading balance. Larger accounts usually enjoy lower spreads than the smaller ones.
- A small capital will get you stuck with day trading as you cannot afford to follow another trading strategy. You will have to monitor your trades carefully, and make sure to close them by the end of the day as the swap rates may blow up your account.
Can I Start Forex Trading with only $100?
It is possible to start forex trading by investment capital as low as $100. However, such a low amount will limit your trading options and profit potential. Let’s assume you managed to achieve a 5% return on a trade, which is a great profit percentage. However, in this case, the profit will be only $5. But if you’re trading with a $2000 capital, the return on this single trade would be $100.
Trading on a budget can be helpful only if you are a beginner trader and want to step into trading without risking too much capital.
How to Manage your Forex Initial Capital?
Forex trading is not about depositing large amounts of money. That is only one factor. The main factors for a successful trading experience are how smart you can manage your trading activity. Even with a low budget you can achieve constant profits and grow your small forex account. Here are a few tips on how to manage your initial capital:
- Set a risk percentage per trade: make sure you never risk more than 1% of your capital. If you’re trading with $400 capital then your risk should not exceed $4 per trade and so on. However, it is advised to keep risk rate at 0.50% for small accounts.
- Start with small positions: it is always wise to open small positions, especially if your investment capital is already low. Check how to determine the proper lot size and calculate profits/losses.
- Use stop loss orders: it is a critical element on risk management and money management rules. Using stop loss offers a protection to your funds if the market moved faster than you can react.
- Apply leverage wisely: leverage is a popular funding tool to maximize deposits and trade more. Higher leverage levels may seem tempting to beginners, especially those with low trading capital, as it multiplies funds available for trading. However, leveraged trading is very risky and should be applied wisely. Make sure to apply low leverage levels as you take off and gradually level it up to your experience.
Forex leverage is an investment tool of using borrowed capital to maximize an investment’s potential return. It is defined as the ratio of the amount of capital to the required margin. It also gives you the ability to increase your trading capital with a relatively small deposit, the margin.
By using a leverage of 1:100 for instance, every $1 you invest is worth $100, and with your $1000 margin, you can open $100,000 lots. For example, if the EUR/USD rate moves up 100 pips from 1.1100 to 1.1200 and you had invested $1000, you would have made $10 on that trade. But, with leverage, your $10 profit will be magnified to $1000 instead.
Because profits and losses are calculated on the total size of the position, so losses may be exceeding the initial deposit. That’s why leveraged forex trading is a double-edged sword. So, it is important that forex traders know how to manage leverage usage and adopt a strict risk management plan to mitigate potential losses.
AximTrade provides a leverage range that helps you choose your preferred risk level. The leverage ratio depends on your account type and equity, up to infinite leverage. Existing leverage can be reduced by applying custom leverage.
Now, you can experience unlimited opportunities with AximTrade’s infinite leverage. Check more about the infinite leverage account.
How to open Forex Account?
You can choose between various account types, based on your forex trading strategy, experience, and capital designed for investment. Enjoy favorable trading conditions with Aximtrade when it comes to margin and leverage levels.
Features of Trading Accounts from AximTrade:
- Variety of account types including Standard, Cent, ECN, Islamic and Infinite Leverage Account
- Excellent customer service reachable through email, live chat, and more
- Tight spreads and low minimum balances reduce financial commitment
- Fast order execution with execution speed at 0.004s
- Minimum deposit of $ withdrawal 1 and no commission
- Instant deposit and, wide variety of payment methods