How Much Money Do You Need To Trade Forex?

How Much Money Do You Need To Trade Forex

“I want to start trading Forex, but how much money do I need to start?”. Most people who want to become traders don’t have a million dollars to throw in the market.

For some reason, many people believe the notion that you need huge amounts of capital to trade, and this thinking stops them from ever starting. The truth is that you don’t need a lot of money at all. Like anything in life, you can start small and build your empire from there.

There is no definitive amount of capital that every trader should begin with. So to help you determine how much is right for YOU, we will breakdown the following:

  • What is the absolute minimum amount?
  • What is the “perfect starting point”?
  • What are your goals?
  • Do you aim to live off your trading profits?
  • Using leverage to maximize returns.

What is the absolute minimum amount?

Certain brokers will let you open accounts with as little as $10. Although this sounds great, I would not recommend trading with that amount.

With anything near $10, you can blow your entire account on one position without any errors on your part. It is impossible to manage risk and stay within your parameters with so little money.

So then, what is the lowest you can go? Anything around the $100 mark is enough for you to get a foot in the door and start learning.

I must highlight that $100 is still very low. It is challenging to stay within the recommended 1% – 2% risk limit per trade, and you won’t be able to have more than a few trades open due to margin requirements. Nonetheless, starting is better than doing nothing.

Also, check out the minimum capital requirements of your broker, many companies focus on high-end clients and ask for amounts over $50000.

But there are plenty of brokers that focus on retail clients, and their requirements are more reasonable. Here are some examples:

What is the perfect starting point?

The above question depends on your level of trading experience and obviously what you can afford to put into the market.

If you are relatively new to the market, I suggest a starting amount of around $1000. Why do I say that? Because it strikes a balance between the fact that you are still finding your feet in the market and can trade without encountering most of the issues that stem from having low capital.

If you have a good amount of trading experience and have a proven edge, you should undoubtably be trading with the maximum amount of money you have available.

What are your goals?

Our goals determine our expectations from the market. While you should never focus on the money while trading when evaluating our performance, traders look at our P/L. The key is to look at our P/L in percentage terms instead of in dollars.

Why is this relevant to trading capital? Because you cannot put $100 into your account and expect to be making $10000 a month. Aiming for percentage returns that high will lead to poor risk management, which sets you up for eventual failure.

Make sure you carefully consider your goals and ensure they are aligned with the amount of capital you are trading to avoid psychological errors.

Do you aim to live off your trading profits?

Trying to feed yourself (and maybe even your family) with profits from an undercapitalized trading account is not an option. The pressure is far too high, and your trading performance will suffer.

I do not recommend trying to live off a trading account that is anything less than $50000. Even with this amount, you would have to make 2%-5% consistently to enjoy a decent quality of life.

Using leverage to maximize returns

Forex trading is so alluring because the high leverage gives traders the ability to make high returns. With as little as $100, a trader with 1:100 leverage has access to $10000 in total capital.

And most brokers offer leverage such as this, or even higher:

 

You can use this power to maximize returns. Just remember to manage the risk that comes with leverage.

Conclusion

Now it’s time for you to decide how much capital you should start with, go through each of these points, ask yourself questions, and determine what is best for you.

May the market be with you.

Trading Capital FAQ

Yes, it is possible to start trading with as little as $100. It must be said that a small amount like this limits profit potential and makes it difficult to manage risk, but it still gives valuable practice. Brokers such as AvaTrade, FXCM, and Plus500 let you start with $100 or less.

If you have an edge and some experience under your belt, $1000 is an optimal amount to begin live trading.

About $50000 or more in capital is required if you want to make a living from trading.

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Guy Seynaeve

Guy Seynaeve

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  1. The information provided on this website is not intended as a financial or an investment advice and must not be construed as such.
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