The questions are endless – and together, they determine what you achieve in the market. But you can also break them down into even more specific directions.
First of all, how much money do you need to start Forex trading? Also, how large should you make each trade?
The answer may be smaller than you think – it's zero.
A demo trading account allows you to experience the live Forex market without risking any money. This even applies if you want to start playing around with an expert dealing platform like MT4 Supreme Edition.
If you are a novice, then a demo account is the ideal way to dip your toes in the water. After all, part of learning is making mistakes – but you don't have to lose capital doing it.
Let's consider the Forex market for a moment.
Much is made of the vast size of the FX market, but its egalitarian accessibility is often overlooked. Small players happily play alongside the largest participants.
There is a place at the table for everyone because of the surprisingly low barriers to entry.
High levels of leverage allow small deposits to command sizable positions.
In short, this means you can make trades without tying up a lot of your cash. Obviously, you should never trade beyond your means, but leverage offers a very convenient way of trading.
It depends on the type of account. Because different account types offer a variety of services and generally require different starting sums. But for the most part, you can open an account with a small deposit.
For example, to open the popular Admiral.Markets account, you need a minimum deposit of 200 EUR (or similar sizes in other currencies). This account offers low spreads and highly competitive leverage. Once you have built up your confidence, you might want to open the Admiral.Prime account with a minimum deposit of 1000 EUR.
This account offers institutional-grade speed of execution with ultra-low spreads and is ell suited to high frequency traders. The point is, the account specs will almost certainly answer your deposit question.
From a position-sizing standpoint, don't trade more than you can afford to lose. When considering how much to start Forex trading with, it is very much an issue of your own personal finances and your own attitude to risk.
Trading can often be a nerve-wracking and pressure-filled experience. One simple way to ease this is to trade conservatively. This will help you cope with adverse conditions.
Let's look at an example to get a feel for how much we are talking about.
A sensible rule of thumb is that you shouldn't be risking more than 1% or 2% of your risk capital per trade. For the sake of convenience, let's use 1%.
The minimum trade size with an Admiral.Markets account is 0.01 lots. A lot is a standard transaction size for each currency pair. Let's say you decide to buy 0.01 lots of EUR/USD.
This is a position that means you make or lose 0.1 USD for every pip movement. The margin for a position this small would be covered by your minimum deposit.
Here's the kicker – quantifying the risk attached to an individual trade is a tricky business. We can broadly say that the risk is the amount of loss you would be willing to withstand before closing the position.
However, this likely underestimates the risk because you may subsequently change your mind and tolerate a greater loss. There may also be times when a market moves faster than you can react.
One way to try to draw a line under the position and quantify the risk is to use a stop-loss.
But be aware that a conventional stop order is not guaranteed. A stop order becomes an order to deal at market once its level has been hit. In the event of a fast-moving or gapping market, this means it may be subject to slippage. Slippage is the number of points that your position is filled away from the level of your stop order.
In short, stops do not mean any maximum loss is set in stone, but they do give you a rough and useful idea of your risk for normal conditions.
Let's say you placed your stop 80 pips away. For our rough estimation, we could say the theoretical risk is 80 pips x 0.1 USD per pip = $8.
If we are assigning a theoretical risk of $8 to this trade and we are also saying one trade is 1% of our total risk capital, then the total risk capital must be $8 x 100 = $800. Because the minimum transaction sizes are so small, you only need a small amount to start trading Forex.
These are just some sample numbers, of course. If you worked with tighter stops, your risk capital would be even smaller. If you worked with wider stops and/or a larger transaction size, you would need more risk capital.
Here's another way of considering the question – successful trading is about winning in the long run. To win in the long run, you must not be wiped out in the short run.
Still want to know how much money do you need for Forex trading? Put it simply, you need enough to avoid blowing up.
Look at price catastrophes that have occurred historically in your currency pair of choice. Think about what such movements would mean to you with your average trading size. Make sure that your risk capital is large enough to withstand such price shocks.
Once you're up and running and in a position to make steady returns, it might be time to consider how much money do you need to trade Forex for a living.
If you are looking to live off your profits, you are going to be trading in sizes that are much larger than our minimums. Therefore, your risk capital will have to be larger as well.
To be considering living off your profits, you are going to have to be a successful trader.
So, let's make an assumption that you are able to grow your risk capital by 10% per year. Let's also assume you draw half of these profits off each year as your salary and that you want 50,000 Euro (before tax) to live on. This implies your risk capital would need to be 1 million Euro at the outset.
It's a fair chunk of change, right?
Don't worry too much if you are a long way from that now. Instead, concentrate on achieving steady profits first. If you can do that, you're on the right path.
Keep compounding those annual profits and you will get there sooner than you think.
If you start conservatively and use sensible money management, you do not need a large amount of money to trade Forex.
It is possible to start trading with only a few hundred Euros, provided your trading sizes are small. And if you are just starting out, small trades are going to be appropriate.
If you are willing to put in the preparatory leg work, you should be able to discover a trading approach that works for you.
There's one more thing to consider – people who succeed at trading, work hard at it. The more effort you put in, the more likely you are to succeed.
So, when facing a new, challenging venture, the only correct option is learn more about what you are getting into.