Most novice traders ask themselves: How much money do I need to start trading Forex? What’s the minimum required capital at the start? This question is quite complex and requires a more detailed consideration to answer. Nowadays, many brokerage companies don’t have strict requirements for the minimum initial deposit. It often ranges from $1 to $100. But, practice shows that this amount is not enough to achieve consistent trading profitability in the market.
Statistics show that most traders fail at the beginning of their journey. Why is this happening? The main reason for failure is a lack of knowledge and experience. Another major reason is the inability to keep a cool head and control strong emotions such as fear, greed, excitement/anxiety, etc. But the most common reason for failure is poor money management. Of course, any beginner trader wants to invest $100 and double or even triple this amount in a month. He can even be lucky enough to do it once or twice, but eventually, higher risks will wipe out his account balance, since the risks will be antithetical to the amount of capital.
So, how much to deposit?
Your profit in the Forex market and the amount of your deposit are directly related. All brokers repeat this mantra over and over, urging new clients to deposit more at the start. However, not everyone can handle a large deposit at once. Many traders take time to get used to money and learn how to manage it wisely.
The initial stage of Forex trading should be considered not as the time to make money, but as a training period, when a new trader gets to know the market and its intricacies, acquires trading skills. The smart decision here would be to deposit a small amount, maybe open a micro account. The amount of your deposit should correspond to the amount you are willing to lose without stress and getting really upset.
This is the only way trading can become comfortable. You’ll be able to concentrate on the training process, without constantly fearing to enter a losing trade. Losses and mistakes are inevitable at the beginning of any journey. With the right amount of deposit and risk, you’ll worry less. It’ll allow you to focus on building a solid trading system and making a profit. The more your professionalism and confidence grows, the more you can afford to deposit while remaining in your comfort zone.
Pros and cons of trading with a small deposit
The main advantages of starting small are:
- fewer losses, since there will be not much to lose;
- easy to control emotions when you don’t risk much;
- a good way to test a new trading system or indicator.
What about the cons?
- proportionally to your risk, your profit will be small too;
- if trade small for too long, it may be psychologically harder to start investing large amounts.
Here are some tips for new traders:
If you decide to try your hand at trading and you can afford to invest only a small amount, consider the following:
- When opening a trading account, choose the broker that allows you to set the desired amount of leverage on your account.
- Use small leverage. Yes, you won’t earn much, but it’ll protect you from losing money either.
- Check your broker’s trading conditions from time to time. It is necessary to know the amount of margin for the instruments you trade, the cost of a pip and other details.
- Always keep a “safety net” that is equal to or greater than the amount of your deposit. This way, you’ll be able to reduce the load on the deposit if you went too far with the borrowed funds.