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How Much Money Needed for Forex Trading?
People often type into Google: How much money needed for forex trading?
Put differently, how much money do you need to start trading forex?
It’s a good question…
But tough to answer.
We’ll give it a shot below…
How much money needed for forex trading
The good news is that you don’t need to be rich to start trading forex.
The truth is, you can start trading forex with as little as $100.
Although starting with $100 is possible, it’s not ideal!
We recommend starting with at least $500.
Starting with $500 will give you more flexibility. This flexibility will allow you to make losing trades without overeating your account balance.
If you’re serious about making money, then starting with $5,000 or more is a better starting point. This will allow you to make a good amount of income, compared to the amount of time you spend trading.
But what if you don’t have $5,000?
Remember, you can start trading with $500 or less!
But, starting with less capital, it will take longer to build your account balance. You might also find yourself needing to top up your account if you have a bad run. Regardless of your starting balance, risk management is the key if you want to be a successful forex trader.
How much money needed for forex trading: Goals, expectations, money management
Speaking about trading a small account, don’t expect to get rich quick.
Your goal should be to grow your account balance slowly over time. As your account balance increases, the more you can risk per trade.
The compounding effect will really help you with your confidence.
But it’s important not to get greedy too soon…
Focus on learning how to trade forex.
If you set your expectations right from the start, you will thank yourself later.
Why is this important?
Most new forex traders aren’t satisfied with making just a couple of bucks a day.
Most people see forex as a way to get rich.
So when new forex traders make a bit of money, they will often risk more of their starting balance with every trade. They hope that risking more on each trade will grow their account balance quickly.
Not so fast…
This overly aggressive strategy may work for a while. But, in most cases, you will probably lose everything.
Pro-forex traders like to ‘bet’ 1-2% of their trading account on any single trade.
Mind you, this isn’t a hard rule that you need to follow. It’s just that most pro forex traders like to structure their money management strategy that way. At the end of the day, you should have a sound money management strategy in place BEFORE you start trading forex.
How much money needed for forex trading: How to trade forex with just $100
The good news is that brokers know that new forex traders don’t want to start trading with a large balance. That’s why most forex brokers cater to new forex traders by offering micro lots.
A micro lot is 1,000 units of the base currency. Each pip has a value of around $0.10.
In this case, someone can start trading with as little as $100 and only lose $2 on a losing trade. That’s assuming they only risk 2% of their account balance on trades, mind you.
As you can see, trading with only $100 is possible at the start. But you will need to use a trading style that accommodates your account balance.
Let’s look into trading styles in more detail…
Position trading involves sitting in your position for several days or even weeks. For example, depending on the trade characteristics, you might buy a forex pair and hold it for two or three weeks.
As you can probably guess, having a lower balance may be a potential issue here.
For instance, say you’re just starting out with $100. You may find yourself lacking in funds to place other trades. That is, when your money is tied up in a position trade. Position traders like to risk more of their total account balance on conviction trades. For example, a forex trader might risk 10-15% of their account on a position trade.
A position trader trades less than most other traders. That’s because decent opportunities only come around every so often. So, most of the time, position traders do nothing but analyse the market for opportunities and keep an eye on their current positions.
For this reason, we don’t really recommend position trading unless you have at least $500 to invest. You can put $100 into five position trades, for example. But, even then, you may find yourself lacking in funds and get bored with a low starting balance.
Swing traders look for trades that take anywhere from one day to one week to complete.
Again, while you have outstanding trades, this trading style can tie up a significant amount of your funds.
A minimum balance of at least $500 is recommended if you want to start swing trading.
Day trading / scalping
Scalping or day trading is much more suitable for accounts with a lower balance. This kind of trading involves making trades that take only seconds, minutes, or maybe a few hours to complete. But, keep in mind, scalping and day trading requires you to be sitting at the scene most of the time.
Day trading is hard in the forex markets.
Because the market is so volatile.
You will often be stopped out.
This can be super frustrating.
If you’re going to try day trading, don’t bother trading with the one-minute charts or lower. Nine times out of 10, you will lose to the algorithms. Remember, algorithms are set up to trade every news headline and make money off breaking news.
You simply can’t trade quicker than a robot.
If you’re going to try day trading forex, trade off the five-minute chart or higher. Hold your positions for minutes to hours – not seconds. At the end of the day, if the market is volatile, scalping is ideal. You can make several trades each trading session.
We recommend a minimum balance of at least $100 to start day trading. However, you may need to add additional funds to your account if you have a bad run.
Your ‘Start with Forex’ Takeaway: How much money needed for forex trading?
To summarise, you don’t need to be rich to trade forex. $100 is enough to get started. That said, while starting with just $100 is possible, it is not really recommended.
Starting with $500 is a better amount for new forex traders.
$500 will allow you some wiggle room for losing trades.
A balance of $5,000 or more is ideal. That balance will allow you to earn a good amount, compared to the amount of time spent trading.
You should focus on day trading or scalping if you’re starting out with a balance of less than $500. If starting with a balance of $500 or more, you may want to try a few different trading styles and decide which one works the best for you.
Your ‘Start With Forex’ Takeaway: No matter your starting balance, an effective trading strategy and sound money management system is key. That combination will allow you to grow your account over time.
It’s essential to set realistic goals and expectations from the start. Remember to remove your emotions from trading and be happy with small gains. Small gains add up quickly. Risking a large amount of your balance, in an attempt to grow it quickly, will probably send you broke.
If you want to learn how to trade forex like a professional, start by reading our FREE forex course. Remember, there’s a million ways to make a million bucks in the forex markets. So if you want a head start in forex trading, alongside our free course, check out our approved products page for forex trading signals and systems to help kick start your trading.
To your trading success,
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