How much money do you need to start trading Forex?

Forex TradingOne of the most important and difficult questions to answer for Forex beginners is how much money is required to start trading Forex. The reason it is so hard to give an answer is that the question itself points to a lack of knowledge.

Before you find a resolution to this question, you'll need to consider the following:

  • your reasons for trading: is it a primary or secondary source of income?
  • the investment limitations imposed by your Forex broker
  • what you can afford to invest
  • your willingness to take risks

Let’s consider these four factors one by one.


Reasons to trade

What has led you to the decision to trade? If you are ready to trade, you should have a clear answer to this question. After all, how can you set goals if you don’t know what you want out of it in the first place?

While some people might have a casual interest in the Forex market and the desire to learn, others might be looking for a whole new source of income. There are massive differences in your approach to trading based on your intentions. If you just want to learn, you can start small with no financial expectations. But, if you want to make an income, you need to have enough money to finance your small beginnings and education, and the motivation to make big decisions.

The psychological implications of how much money you begin with come into play here too. If you are investing large sums, you're more likely to be cautious. If you are investing small sums, you might make rash decisions in the hope you can earn big, quick.


Your broker’s investment limitations

Generally, your broker will require a minimum deposit to open a trading account. While some provide no deposit accounts, most brokers require around $200 as a minimum deposit.

Most brokers do not have a maximum. They want you to invest more, rather than less, and can handle the big sums.

But that does not mean you should go all out. If you are a beginner, it is always wise to check yourself before making big deposits.


Risk capital (can you afford it?)

One of the biggest mistakes you can make as a beginner trader is not to have risk capital. Risk capital is money you've put aside to invest so that you are not risking your daily needs.

Although you may think you're willing to take big risks, come what may, wisdom regarding trading psychology says different. If you're using your daily funds, you're likely to make bad decisions. Trading requires calm analysis, but if you think you're about to lose your daily bread, it is impossible to make calm and objective decisions.


Risk taking

Risk taking refers to what you're willing to risk of your trade (or risk) capital. Although you don’t need it to put food on the table, taking big risks can put you out of the game really quickly. Generally, traders risk no more than 1% to 2% on single trades. With Forex trading, because leverage is so readily available, you can multiply your investment. However, you can lose just as much.

The amount you need to start trading depends on the risks you're willing to take. If you're going to trade 1% of your capital, a small capital will make very little money. You lose flexibility and possibly motivation.


Save up

There is no fixed amount of money required to start trading Forex. Once you've asked yourself these questions and have good answers to them, you should start saving up to trade. Forex trading is not a get-rich-quick scheme, and there should be no hurry to get started.

The longer you wait, and the more you have, the more likely you are to succeed.

Forex Currency Trading

Which Currencies are traded within Forex

The majority of the volume in Forex trading is generated by 18 currency pairs. The eight currencies most often traded in Forex are:

  1. U.S. dollar (USD)
  2. Canadian dollar (CAD)
  3. Euro (EUR)
  4. British pound (GBP)
  5. Swiss franc (CHF)
  6. New Zealand dollar (NZD)
  7. Australian dollar (AUD)
  8. Japanese yen (JPY)

Hundreds of different currencies are traded within Forex, and they are all traded using pairs. Currency pairs are categorized in majors, minors and exotic pairs. The most traded Forex currency pairs that generate about 85% of the total volume are the following:

  • EUR / USD – Euro / US Dollar
  • GBP / USD – British Pound / US Dollar
  • USD / JPY – US Dollar / Japanese Yen
  • USD / CAD – US Dollar / Canadian Dollar
  • AUD / USD – Australian Dollar / US Dollar
  • USD / CHF – US Dollar / Swiss Franc

Each Forex pair is expressed in units of the quote currency. In each Forex pair, the former currency is called the base currency and the latter currency is the counter or the quote currency.


What Moves Forex Currencies 

The main factor affecting currency fluctuation is global demand. When the world demands more dollars, then the value of the dollar increases in relation with other currencies. The demand for a particular currency is determined by monetary policies like the interest rates, by new economic data like inflation and GDP but also from political and physiological factors.


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