Forex Trading: How Much Money Do You Need to Start?
If you have decided to, or are still considering whether to become a professional Forex trader, you are probably wondering things such as 'How do you start Forex trading' or 'How much money do you need to start Forex trading?'. This article will address such questions, and more, by providing you with a step by step guide on how to start trading Forex online today.
Table of Contents
- How to Start Forex Trading
- The Forex Market: A Market For Everyone
- Principles of Forex Trading
- Be Risk-Aware
- Trading Strategies
- Choosing a Broker
- How Much Money Do I Need to Open a Forex Account?
- How to Start Trading With Just $100
- Demo accounts - One of the Best Ways to Learn
- Can You Get Rich Trading Forex?
- Trade Forex & CFDs With Admiral Markets
How to Start Forex Trading
There are a dizzying array of questions and variables to consider when you begin trading. Can I teach myself to trade Forex? Will I trade using fundamental or technical analysis? Or perhaps, a combination of both? Do I want to start day trading Forex or will I be taking a longer-term approach? Will you trade rigidly based on the rules of a particular Forex system? Will you take a more discretionary approach?
The questions are endless, but ultimately they determine what you will achieve in the market, and how you do it. You can also break these questions down into even more specific directions.
Remember that trading education never stops, even for advanced traders earning a full time living from trading.
Before we go into the details of how to start trading Forex, remember two key points any trader should keep in mind when starting Forex trading: risk management and using a demo account.
One important thing to consider when you start trading is how to implement risk management into your trading. Doing so will enable you to manage the risks effectively, so you are aware of them, and you know how to reduce your exposure to these risks.
Once you have learned some basic essential principles, the best way to start getting experience is with a demo trading account. With a demo account, you can experience trading live markets with live data with virtual currency. In this way, you get real trading experience without risking any capital.
If you are interested in opening a free demo trading account with Admiral Markets, click the banner below:
The Forex Market: A Market For Everyone
Is Forex trading good for beginners too? 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 sizeable positions. However, they allow small deposits to command incredible losses as well.
In short, this means you can make trades without tying up a lot of your cash. Obviously, you should never trade beyond your means. I recommend beginner traders wait until they gain more experience before they start trading with leverage. However, when used carefully, it offers a very convenient way of trading.
Principles of Forex Trading
While you learn to trade, you can capitalize on a wealth of resources available today online. For example, you may find a video tutorial on YouTube, or discover the best Forex traders to follow on Telegram. Regardless of what information you gather while you are educating yourself, there some key principles all successful traders incorporate in their trading activity. how to start Forex trading, there are some fundamental principles that all Forex traders abide by.
- Manage expectations: Try not to be too focused on profits. This anxiety can cloud your judgement.
- Define your trading risk profile: Do not invest more than you can afford to lose.
- Choose a trading strategy: When starting, pick a strategy that you think suits you. Continue educating yourself on this strategy. After you become skilled with it, begin educating yourself on a new one
- Control your emotions: Never let emotions dictate trading decisions - always stick to your strategy
- Use stop losses and take profits: 'stop losses' protect you from incurring major losses in case the market falls fast and deep, while 'take profits' ensure you are capitalizing on profits when the market rises
- Be aware of the markets: Always follow what's happening in the markets so you are aware of any current trends or big events that could impact them.
- Don't overtrade: When starting, be sure you don't expose yourself to too many risks. Be sure the opportunities you see are truly opportunities and don't entail too much risk.
- You will lose, eventually: There's not a single trader who can show a trading statement that doesn't include a single loss. Even the best professional traders incur losses. A successful trader is someone who, in the end, earns more than they lose.
- Develop a trading plan: Develop a strict trading plan that will dictate all of your trading activity. This will help you avoid developing bad habits from the start, like overtrading.
- Choose the Right Broker: You can eliminate major potential losses from the start by choosing the right broker.
In the following sections we will take a look at some of these points in more detail.
Depicted: Admiral Markets MetaTrader 5 - EURGBP Daily Chart. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
You should never 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 these 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 capital per trade. For the sake of convenience, let's use 1%.
The minimum trade size with the Trade.MT5 account is 0.01 lots. A lot is a standard transaction size for each currency pair and equates to 100,000 units of the base currency. Let's say you decide to buy 0.01 lots of EURUSD. 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.
How Do You Quantify Risk?
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 on the market once its level has been hit. However, in the event of a fast-moving or gapping market, your stop-loss may not be executed, due to slippage.
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 that 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. 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 have your capital wiped out in the short run.
Still want to know how much money you need for Forex trading? Put simply, you need enough to avoid blowing up. Look at price catastrophes that have occurred historically in your chosen currency pair. 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, you might start to consider how much money you need to start Forex trading as a full-time business. If you are trying to find out what realistic monthly returns for a trader are, you are going to be trading in sizes that are much larger than usual minimums. Therefore, your risk capital will have to be larger as well.
Day Trading and Other Strategies
When it comes to deciding which Forex trading strategy is the best and most profitable, there is really no single answer. Determining which are the best FX strategies depends on the individual.
This means that you will have to consider your personality and determine the best Forex strategy that will suit you. What may be ideal for one trader may be a disaster for another.
Here are some common categories that trading strategies fall into:
- Scalping - This entails many short-lived trades, sometimes held for a couple of minutes. Scalpers aim to make many trades with smaller profits (sometimes only a few pips). Some traders consider it one of the most advanced trading strategies.
- Day trading - This entails opening and closing trades within a day. Trades commonly last for a few hours. An advantage of this strategy is that you can avoid being adversely affected by large market changes that occur overnight. Day trading is a common Forex trading strategy for beginners.
- Swing trading - In swing trading strategies, trades are held for a couple of days.
- Positional trading - This entails following long-term trends and aiming to maximise profits from large price shifts. The other three strategies in this list are short-term strategies, while positional trading is a long-term approach. They require great discipline and patience.
Which Type of Analysis Should I Use?
All of these strategies mentioned above, as well as most other strategies, entail some form of analysis.
Technical analysis is the studying of price patterns of a specific asset. The intention is to identify price trends to make predictions of future movements. There are several different ways to identify trends and patterns in the markets, but many technical analysts use chart patterns and indicators.
Fundamental analysis is a means of analysing financial markets to forecast the price of an asset. In Forex fundamental analysis, analysts focus on the general state of the economy and analyses different factors such as:
- Employment rates
- Interest rates
- International trade and manufacturing
They assess each of these factors and their impact on the value of the currency each one relates to.
The main premise for fundamental analysis in Forex and other markets is that an asset's current price may not reflect its real value. According to fundamental analysis, markets may misprice a specific asset in the short term. Fundamentalists believe that while the asset is mispriced in the short run, it will eventually come back to the correct price. The aim of performing fundamental analysis is to find an asset's real value, compare it to the asset's current price, and identify an opportunity for trading.
While technical analysis focuses only on the current price of an asset, fundamental analysis researches almost every issue except the current price.
Choosing a Broker
This is important. If you don't trust the reputation or financial security of your Forex broker, this can distract you from focusing on trading. When you have confidence in your broker, you will have more mental space and a clearer head as you analyse and develop Forex strategies.
Doing prior research before you commit to a broker can prevent major headaches in the form of high fees that eat into your profits or losing funds due to the broker not being regulated. This will hurt your chances of growing as a trader.
So, how do you choose a broker?
You can ask yourself the following questions:
- Is it licensed and regulated by a government entity?
- Will my money be insured and protected?
- How is their customer service? Is it easily accessible?
- Do they work with a reliable trading platform?
You should take the necessary time to research and find the best broker for you.
Admiral Markets does an excellent job for both beginner and advanced traders. Admiral Markets offers over 8,000 unique trading instruments, with industry-leading offers in spreads, low commission, and negative balance protection to give clients the best possible experience and chances for success.
Over 100,000 traders have already chosen Admiral Markets as their broker and thanks to their continued faith in our product and offering, Admiral Markets has received numerous awards.
We also offer an extensive library of educational articles for traders to learn each detail, strategy, and fact about the market and industry.
How Much Money Do I Need to Open a Forex Account?
When you are ready to open a live trading account, you may be curious how much money you need to do so. Or, perhaps you're interested in starting trading Forex with a small amount of money.
It really depends on the type of account. Because different account types offer a variety of services and generally require different starting deposits. But for the most part, you can open an account with a relatively small deposit.
How to Start Trading With Just $100
While it may seem impossible to turn $100 into a substantial amount of money, starting trading with $100 is enough to get started in some places. If you develop a sound trading strategy that incorporates sound risk management, your profits could grow exponentially over time and trading could become a second source of income for you
On the other hand, if you are interested in learning how to start Forex trading by trying some practice trades, then opening an account with $100 may be a good place to start, if you can afford a $100 loss.
The key to succeeding in trading is in your trading strategy. Whether your account has $100 or $100,000 in it, You will need to stick to it, the key aspects of any sound strategy are a trader's analysis and ability to not make emotional trades and ability to stick to the strategy.
Here is some good news. You can use any sound trading strategy to trade on a trading account with $100 as some brokers will let you open an account with a low minimum deposit.
With Admiral Markets, you can open a Trade.MT5 or a Zero.MT5 account with a minimum deposit of $100 (or a similar amount in other currencies). The Trade.MT5 account offers low spreads and highly competitive leverage, whereas the Zero.MT5 offers ultra-low spreads and institutional-grade speed of execution which is well suited for high frequency traders.
Once you’ve established your trading strategy and raised your balance via profitable trades, you can then trade with greater volume, to increase the size of your profits (and losses). To avoid big, unexpected losses, you can take some sound money management principles and incorporate them into your trading strategy.
If you’re a new trader, it may be wise to limit your trading activity to a single currency pair before you start trading multiple positions in different pairs. One currency pair will trade differently than another due to its underlying fundamentals.
One of the best currency pairs for beginner traders, to begin with, is the euro U.S. dollar pair (EUR/USD). We suggest this pair because it's highly liquid and features tight spreads. Both of these characteristics make it the most traded currency pair on the market. Economic news related to these currencies is also plenty and easily accessible. The EUR/USD pair is a good choice if you are interested in learning how to start Forex trading with $100.
Demo accounts - One of the Best Ways to Learn
The best way to start putting what you've learned into practice is through a demo trading account. This allows you to start trading Forex without an initial investment and experience the live Forex markets, without risk, by trading with virtual currency. Admiral Markets offers clients the ability to trade virtual funds of up to $10,000 in their Forex demo account.
If you are a beginner, a demo account is a perfect way to start Forex trading and get a feel of what the live markets are like.
After all, part of learning is making mistakes – but with a demo account, you will not have to lose capital by doing so. To practice all that you've learnt, there's no better place to get started than with a demo trading account.
Can You Get Rich Trading Forex?
Even the most successful traders had to start somewhere and if you regularly make profits from your trades, then you can be considered a successful Forex trader. However, becoming rich depends on your skill and strategy and, as always, some luck.
If you are a new trader looking for some inspiration, you might want to read our other article: 'Top Three Best Forex Traders Ever'.
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 Dollars, provided your trading sizes are small. 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 Forex, 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 to learn more about what you are getting into. If you would like to learn more about Forex, or trading in general, why not check out our range of articles and tutorials?
Trade Forex & CFDs With Admiral Markets
Professional trading has never been more accessible than right now! Admiral Markets offers professional traders the ability to trade on the Forex market directly and via CFDs with 80+ currencies, including Forex majors, Forex minors, exotic pairs and more! Open your live trading account today by clicking the banner below!
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of, or recommendation for, any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.