When you’re considering Forex trading, one of the first questions you’ll have is how much money you need, after you learn the most basic stock market terms of course. The simple answer is: it depends. There are a range of factors involved. Use these questions to decide if you have the money to start Forex trading.
Why Are You Trading?
Every trader should have an answer to this. And it should not be vague. If you are looking to make trading your primary source of income, you’ll have very different needs than if you’re just trying to make an extra buck.
If you want to make Forex trading your day job, you’re going to need more capital than if it is just a side project. You’ll need to build up your resources: both in terms of Forex education and finances.
One interesting fact to point out: research has shown that the bigger the bank balance, the more cautious traders are. Psychologically, you’re going to make more measured trades if you start when you’re more financially ready.
Setting Up A Forex Trading Account
If you want to get started trading Forex, you will need to open a Forex brokerage account. Any individual looking to trade needs to open up an account. You need to consider two things when deciding on where to open your trading account, leverage and commissions and fees. You want to be certain that you choose the best place for you to open a brokerage account for Forex trading, just like successful investors do.
You Or Your Broker?
One thing to remember is that your prime broker wants you to invest more rather than less. This is why you’ll find minimum deposits with most brokers but no maximum deposits. In other words, you can invest as much as you like, and your broker will likely encourage you to go ever higher.
Not only should you use a trustworthy broker, you should also reevaluate what it is that you personally want. If you want to invest the minimum, then that should be your choice.
Deciding if you have the money required to start Forex trading depends on more than just the investment. Every trader should have trading or risk capital. This means that the money you’re trading with is not the money you need for day to day living. In other words, the amount you need to start trading depends on the investment + your everyday needs.
If you don’t have enough risk capital, don’t make the mistake of giving it a go anyway. More than the fact that you might end up struggling at home, you’re setting yourself up for failure. Experts on trading psychology will stress over and over again that if you’re using your day-to-day means you will make bad decisions. This is because instead of viewing your trades objectively based on the latest Canadian debt news, you’ll panic and make trades out of desperation.
Set A Threshold
In addition to more general guidelines of not trading your day-to-day living expenses, Forex day traders should not risk more than 1% of a trading account on a single transaction. This will keep your losses to a minimum. It will also help you keep your emotions out of your trade decisions. Forex experts even lose money. Obviously, you are going to too. That is why setting a Forex trade threshold is so important. This way, you keep the risk on each trade small. That means you will never have to worry about completely wiping out all trading capital with one bad trade and being forced to rely on unsecure loans. If you want to trade Forex like a pro, make sure to never risk more than 1% of your Forex account on any one trade transaction.
Finally, it’s crucial that you have realistic expectations without factoring in any of your intangible assets. You might think you have the money to start Forex trading because you expect to make exponential gains. Or you may not realize how much there is to lose. Remember that when you trade with leverage, you can lose more than your investment sum.
Be sure to follow common Forex trading tips and always invest responsibly. As with any investment, too much risk defeats the purpose of earning your money back. Regardless of how much capital you start trading Forex with, your strategy is what will determine your success.
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