Meta title: What Are The Financial Requirements To Become A Trader
Meta description: Forex trading is different from stock trading and here is all you need to know about the minimum money you need to be a forex trader
Forex trading needs capital like all businesses. One good thing about trading in forex is that you can start with very little money. Moreover, there is no legal minimum amount required for forex trading, unlike the stock market. You even can start with a minimum deposit of $1 as offered by some trading accounts, whereas opening a free demo account allows you to start without any money at all.
Do you need a forex broker?
Trading in with a regular bank account or a money changer is too slow and costly so it is wise that you go to a forex broker. You may consider delving into social trading, or other trading strategies – There are certain advantages here.
- Minimum deposit amount
The minimum deposit amount is less for most forex brokers. Usually, it is around $100, though some brokers require a minimum deposit at all. With them, you can start with as little as $ 1 but forex trading with such a small amount has its problems.
- Minimum Position Size and Maximum Leverage
Usually, most forex brokers will not let you make a trade sized smaller than 1 micro lot (0.01 lots) which is worth 1,000 units of the base currency. This is smaller than what you will get if you want to do it on your own. For example, to trade in a micro lot of USD/JPY currency ($1000) you need to deposit $1000. Forex brokers might offer leverage like 30:1 or 50: 1 on your trade which allows you to trade with a $33.34 or $20 deposit to trade in one unit of USD.
A few forex brokers allow trading in a minimum position size lower than 1 micro lot. This nano lot isequal to 0.001 lots. So, according to the USD/JPY example, Continuing with our example of placing a trade in the USD/JPY currency pair, 1 nano lot would be equal to $100. With a leverage of 100 to 1, this trade will require a deposit of $1 only. Be careful though that this leverage varies from asset to asset and country to country.
Should you start with no money?
For a newbie, opening a free demo account is better than putting any amount of money in an account straight. The demo account will allow you to access the same markets and trading tools. This will also help you to familiarise yourself with the market, platform, and the available tools of the trade, instead of jumping straight into the mayhem and lose your money. This will also allow you to save some amount to invest as you get a feel of the market.
What is the minimum starting amount?
If you open an account with a minimum deposit of $1, there is very little that you can do with this amount. There are several reasons you should consider starting with a higher deposit.
- Risk management
The forex market moves in pips. For most currency pairs, a pip is 0.0001 or equivalent to 1/100th of a percent. For example, if the EUR/USD price changes to 1.3026 from 1.3025, that’s a one pip move. Forex is also traded in micro (1000 units), mini (10,000 units), and standard lots (100,000 units).
So, for an investment of a small amount or a small lot, any change in the pip value will have a small reflection in your account.
Most traders risk no more than 1% of the account on any trade. So, if you have $100, then your risk should be $1. You can imagine the amount of money you can make from $1 in your account and the time it will take to generate a respectable return.
- Keeping your interest
You should consider what is going to excite you – earning $10 or $100 or $1000 a day. This is important because if you make a steady or more money per day then you will stick to trading for long.
Once you have acquired more understanding of trading and risk management you can open a live trading account with a more realistic amount. The amount you start with is completely up to you but the minimum should be 100 Euros, GBP or USD. Money makes money, and that is true in this trade too. To make thousands either you need thousands in your account or the patience to build your account over time.