Forex is a global, decentralized market or financial medium for currency trading. The complete form of Forex is Foreign Exchange. If you want to start working in this sector, you will get a currency pair with an exchange rate fluctuating. The forex market is one of the most accessible financial markets in the world. So, you will easily be able to start trading in this market. Before doing this, the first thing you need to know is how much money do you need to start forex trading? Here in this article, we will give you a clear idea about it. We hope it will help you to create your trading.
However, there have much more things to know about forex trading to start trading in this market. Check out FX Trading Master to get all those information. You will also get all the best brokers there.
How much money do you need to start Forex trading?
Well, you don’t need a large amount of money to start forex trading. Here most of the rules and regulations are relaxed, and at the same time, you will get greater allowable leverage. Legally, you need only $100 to create a forex account. Therefore, we recommend you start at least $1000 to utilize the proper stop loss level efficiently.
On the other hand, if you want to make income from this market entirely, open a day trading account with $3000 or a swing trading account with $4000.
The main rule is that you should not take more than a 1% risk of the balance you have in your trading account. That means you need a minimum of 100 times greater than the maximum risk in the trades you want to make to start forex trading. For understanding more, you need to know about three important things, which are as follows:
The foreign exchange market moves up and down by Pips. Pips mean “Percentage in Point” or “Price Interest Point,” which is calculated by the last decimal point in the exchange rate. Here most of the currency pairs are priced to four decimal points. An example can clear you deeply. Think that GBP/USD is priced at 1.4445, which is moved at 1.4447. That means it moves two pips. We hope you got the point. Similarly, if that goes to 1.4547, that means it moved 100 pips.
The forex market allows the traders to trade in currency pairs in 100000, 10000, and 1000 units called standard, mini and micro, respectively. Traders who want to invest a smaller capital have to trade the micro lot. Here, one notable thing is that in the pairing where you wish to place an order from any currency to USD, a pip will always be worth $0.000. That means, if you hold a micro lot, every pip movement will be worth $0.10.
Now let’s talk about the risk in forex trading. Here the main rule is, Trade Risk= Pips × Pip value × Number of Lots. Suppose you want to open an account for $100 and then place an order in EUR/USD to buy or sell a micro lot, where the stop loss order must be within 10pips of your entry price. Here the trade risk will be (10 × $0.0001 × 1000) = 1%.
Though you can start forex trading with $100, we will not recommend you to do that. Because there have some disadvantages to do that, let’s check them out.
The disadvantage of starting forex trading with a small capital
There have three main problems when you are starting with small capital. These are as follows:
Small gains are not satisfying:
After hard work and making some good decisions, how will that be if you gain only one or two dollars? Will it satisfy you? No, not at all. After getting the success, you will think that you should have invested more and placed a more significant order.
Small amount limits you in day trading:
A small investment is okay for day trading in forex trading, but many people want to trade on swing trading. In that case, if you’re going to retain the risk same as 1%, you must need $2500- $3000 as a starting balance because here, a higher stop-loss will be required (at least 20 to 40 pips).
Your cost-per-trade will be increased:
Most of the brokers cost less per trade in case of a higher starting amount. If you start your forex trading with a small amount, you will have to pay the highest fees as the percentage of trading. So, it will be tough to carry those costs for a minimal amount of gains.
After discussing all the factors, we hope you have understood that you need a minimal amount like $100 to start forex trading. However, that is not our recommendation. After considering all the factors affecting forex trading, our advice is at least $1000 as the starting amount of day trading. On the other hand, if you want to swing trading, you should start with $2500.
Besides, another good option you will get here is to open a free demo account here and apply some strategies to check out how good you are in forex trading. It will help you to gain some experience which will help you a lot in the next time when you will invest your money in forex trading.
However, this was our discussion about how much money do you need to start trading. We hope you have got every point here. Then again, if you don’t understand anything here, don’t forget to ask us in the comment section below. Happy trading.