How much does one need to spend to become a Forex trader
Probably every trader-to-be has asked this question: How much money do you need to start trading Forex? The fact is, this question has no definite answer. Those who ask it usually lack experience in trading, as the answer depends on way too many factors, and it is always a matter of individual choice and the volumes one is ready to approach. We'll list the factors worth considering to estimate how much money you need to invest in Forex. Let's get straight to those.
- Why have you decided to become a trader yourself? Do you want to earn money this way or do you see trading as a hobby?
- The sum you can afford to spend on trading.
- The amount of money which is the maximum that you can invest with your broker.
- The way you take risks in general and financial ones in particular.
What are your reasons?
If you want to know how much money do you need to trade Forex, then you should start with formulating your reason of becoming a trader in the first place. It should be your first step on the trading path. What is your goal in trading? What are you expecting to get from it? Answering these questions will help you understand how much you are willing to earn on Forex and, respectively, how much you are willing to invest.
What are you looking for in trading? You must understand this reason at least for yourself. You can try to brainstorm or simply remember the first time you became interested in Forex.. what were you thinking back then? How serious it has become for you now? Because if it is more than just a hobby for you, then you should understand that, apart from money, you must also invest a lot of your time to learn about currency trading. Fortunately, there is a lot of information on FX trading available, and nothing stops you from educating yourself.
So, back to the question.. How much money do you need to trade Forex for a living? If you don't have a solid trading knowledge basis behind you, you cannot start with big money. It would be simply unwise. Nevertheless, there is no better teacher than the practice. By investing small sums at the beginning, you will soon develop the necessary skills to become a full-time currency trader.
Additionally, the amount of money you will invest results in your attitude towards trading in general. The more capital is at stake, the more serious you become, in order to save what you already have and also gain more. A cautious trader is more inclined towards studying and research. He or she will be more likely to analyse the market prior to opening a position. Besides, they will assess all risks associated with potential losses. This includes leverage. Cautious traders who invest a lot will not utilize big leverage ratio. There are exceptions, of course, as the world of Forex trading is not free of impulsive gamblers.
What sums can you afford to trade with?
When you are trying to calculate the approximate sum which you will need in trading, you should consider another question. How much money can a trader afford to start Forex trading, in general? While this seems like an individual matter of everyone, there are certain general rules. Or, let us say it another way, recommendations which should be followed for the sake of one's own financial health. A trader should invest only money that he or she does not need to pay for essential things starting from food and rent, and up to retirement savings. In no case should one borrow money or take credits when intending to trade.
The money you are going to invest in Forex should be your risk capital. You always need to remember that currency trading is associated with risks and a possibility of losses. If you lose a part of your risk capital, it won't be such a huge problem as if you lose your holiday savings. Or let's imagine that it is something more serious, such as money that you've been saving to pay for your kid's education next year. Surely, no trader ever wishes losing this kind of money; all you probably wanted to do was to earn some more for future use. You might become super confident after the first profitable trades. While thinking that you've got luck on your side, you might be tempted to increase the investments — until you lose. When a catastrophe like this happens, you normally cannot submerge into trading anymore: what you can think of is the horror of what has happened and of all the possible consequences.
An important thing to remember — an every experienced trader will confirm this — is that trading is all about careful planning and thorough analysis. You need to analyse the market and find the right timing to enter it; you need to calculate how much you are ready to lose, and avoid every possibility of losing more. You ought to be impartial and practical, think in advance and keep calm no matter what happens. The first and most important lesson that you can start with is "always invest money that you haven't planned to use in any other way".
How much do you need to invest with your broker?
Another fair question is the amount of money that you should have on your account with a broker. Well, while not all brokers can easily handle large sums, every one of them has a minimum amount that they require traders to deposit. So, how much money should you have to open a trading account? If you just want to create a trading account, you normally won't have to pay anything at all. Moreover, you might even get a "welcome bonus" of some $25 to $50 to try out the platform. You cannot withdraw that money unless you have made a certain number of trades or traded a certain volume. In other words, it's not completely impossible to have that money to yourself, but it's extremely hard.
…Getting back to our question, "How much do I need to trade Forex?" Apparently, you need some money, as the free bonus will not be enough for a good trade, especially if you have decided to become a professional trader. In any case, a person involved in trading should learn how to manage his or her own money. This is why you must make your first deposit, and there are different minimum amounts allowed by different brokers. With some, you can transfer as little as $10 to your account (which would be enough for some time when you are dealing with microlots). With others, an absolute minimum is a $200 deposit. This is rather a standard sum for most online trading platforms which deal with various financial instruments.
Brokers like clients who invest large amounts of money. The more you deposit, the more advanced features will be available to you, as well as more comfortable conditions. Still, this must not be your only reason for investing a significant sum. You should remember about your own trading needs.
Are you fully aware of the risks in Forex trading?
So, we have run through how much money do you need to open a Forex account. Normally, creating accounts is free, and the minimum deposit amounts vary from $10; so, everything depends on you and your choice of a broker. We have also understood that the answer always depends on how much money do you need to start trading Forex, how much money are you planning to earn, and how much are you ready to risk.
First of all, you should think associate your desired profit with a particular period of time. You should understand that higher revenue expectations mean higher investments, and also higher potential risks. This is why you should assess your risks the first thing, and only then decide on the deposit amount.
If, for example, you are going to risk the amount which does not exceed 1% of your balance, then you should consider depositing more than $1,000. Why is that so? Because, even with leverage, you won't be trading full lots and will be dealing with only small pip ranges. It would limit your choice of trading strategies to, pretty much, short-term trading. This leaves you with a revenue that amounts to several dollars daily. Would it satisfy your needs, especially since you have made a choice to trade professionally and invest a lot of your time into theoretical education and development of your own strategy? We doubt that. Thus, you have two options. The first one would be to increase your risk level. The second one is to increase your deposit amount. In our opinion — and you must also agree — the second option sounds better, even if it means saving money for some time.
Trading is never about quick wins. The main trick in trading is to keep the expectations real. According to the statistics, professional traders manage to profit by 10% to 15% within a year. It doesn't seem like a lot of money. Unfortunately, instead of making the corresponding conclusions, the newcomers might be tempted to use higher leverage than they can manage in the case of losses. They believe they can get lucky (or trade more zealously) and multiply their account balance by two, three, or more times. While leverage might help in some cases, it doesn't always work that way. Mostly, such traders end up with their accounts emptied out faster than they ever get the chance to try out the full functionality of the platform. Many of them quit trading for good.
Unlike in gambling, big wins don't happen in trading: you just cannot invest several hundreds in your currency and earn a million in just a year. It is just a mere theoretical probability. So, what is the solution for those who want to earn while not having much money to deposit? We would recommend traders to save money specially for that purpose. It might take a while, but it would be worth it in the long run. Besides, there is always a possibility to train with smaller sums in the beginning of your career.
Main risks in currency trading are associated with traders expecting too much from the start, as well as with lack of funds on their account balance. While it is possible to use leverage in order to increase the potential profits, it is never the best solution. You still should use the maximum 1% of your capital per trade, and to have a feasible profit, you must have a significant amount on your account. Another option is to consider trading as a hobby or an additional source of income, at least for the first time.
In case you are wondering "how much money do I need to trade Forex?", you should always think about the following:
- What is your reason for trading? What are you expecting to get from trading?
- How much can you invest in Forex? Bear in mind that you can always lose this money, which is why you should consider investing only risk capital.
- What strategies will you be using? What methodologies are more appealing to you?
- What is your attitude towards risks? Are you a gambler type or not? Do you keep your expectations realistic?