Trading in forex or the foreign exchange market has garnered so much attention in recent years and so many new traders are flocking to this market all the time. And there are good reasons why this is the case. Naturally the most important has to do with the high returns that you could potentially get from this market.
But perhaps the actual reason for this increased popularity is tied into the nature of this market where you can begin trading with even $100 and build your portfolio up. With that in mind, in this article we are going to discuss this very topic and see how much money is needed to begin trading in the forex market.
Money in Forex
Before we present you with actual figures as to how much money you would need to begin trading in this market, it might be a good idea to take a look at the monetary circulation in this market. The forex market is indeed the largest financial market in the world. In fact, the foreign exchange market lives up to that reputation so much that its daily trading volume, as estimated by some sources, can reach as high as a whopping $7 trillion. To put that into perspective, that daily figure for forex is close to the entire market cap of Tesla, SpaceX, Nvidia, and Apple put together!
So, no wonder it has been able to attract so many traders to itself. When there is this much capital being moved around, it means there are opportunities for making money. In fact, as of the latest statistics, there are more than 10 million active forex traders all over the world.
Now, if all of these figures have enticed you to dip your own feet into the forex pool so-to-speak, let’s see how much money you would need to begin.
Minimum Required Amount to Start Trading in Forex
Let’s start off by the minimum. You need to know that there are many ways that you can circumvent the standard minimum requirements of forex trading in terms of initial deposit and capital. For instance, there is such a thing as lot size in the forex market. Lot size basically refers to the size of the positions that you open in the market. You might be familiar with the concept of the standard lot size, which is equal to 100,000 units of a currency.
Of course, with almost all the major currencies in the world and even the minor ones, 100,000 units would be too much for many people. But not to worry. There are other smaller lot sizes to accommodate all budgets. As such, we have the smallest lot size in the forex market known as the nano lot size which is equal to only 100 units. In this case, if your account’s base currency is the US Dollar, then you would only require $100 to open up an account and begin trading.
But remember, to begin trading in the forex market, you need to open an account with a broker. It is the broker that executes your orders in the market and basically establishes your connection to the market at large. So, you need to find a broker with lenient requirements in terms of initial deposit. There are some brokers that have strict initial deposit requirements and would not accept small amounts.
At the same time, there are still many brokers available that would gladly accept all traders even with as low as $100. This might also be related to the notion of a CENT account. A CENT account, as it gets its name from the denomination of the US Dollar which are of course cents, is one that works with very nominal initial deposits. This is because it divides the base currency and takes at 100 units instead of 1 – which is easy to understand as there are 100 cents in a single Dollar.
What does it mean for you? Well, it means with a deposit of only $100 you can get 10,000 units for trading, which goes a long way in many cases and would even make you eligible to use many tools and automated trading solutions that have a minimum cap for capital.
Too Little Capital, Too Little Gain?
So far, we learned that with only a $100 at your disposal you can begin your journey of trading in the forex market. But there is a slight issue here. With a deposit that low, you obviously know that your chances for profitability are also quite low and marginal. As you also should know by this point, profitability must be thought of in terms of percentages. So, when we talk about a profit margin of 5%, it is not the same amount of profit for a deposit of $100 versus $100,000.
Is there a solution to this particular problem?
Here we have a concept known as leverage or leveraged trading. What this simply means is that you will receive leverage from your broker to trade in the market so that you can trade with so much more than you actually have. While there are many different ratios and rates for leverage, if we consider a leverage rate of 100:1 as something that you can receive from your broker, then with a deposit of $100 you would basically be able to trade with $10,000, or with a deposit of $500 you would be able to trade with $50,000, so on and so forth.
But of course, there are also risks associated with leveraged trading. Because just as your chances for profitability are multiplied, so are your chances for loss. Remember that in order to receive the leverage, you put up a margin as the collateral for the leverage. And if you begin going into loss, you begin losing your margin, i.e. your own deposit. And once your margin is gone you are no longer able to trade, unless you deposit more money into your account. So just be careful with leverage and always remember that it can be a double-edged sword.
Optimal Required Amount to Begin Trading in Forex
While so far, we discussed the minimum amount of capital required to begin trading in the forex market, it is also a good idea to discuss the optimal or ideal amounts of money for this purpose. While there is always the adage the more the better and there really is no cap on the maximum money you can bring to the market, we have divided the optimal amount into three ranges:
- Up to $1,000:
Any amount up to a $1000 can be regarded as a good amount for beginning in this market. This range will provide you with a good chance to practice different aspects of trading, including risk management and honing your general trading skills, without having to risk too much capital on your part. So, if you are new to the market, any amount within this range should be a very good starting point. - Up to $5,000:
One level higher than the previous range would include amounts more than $1000 and up to about $5000. This is for when you have gained a bit of experience in the market and know a thing or two about trading, such that you are ready to take the risk up a notch and begin trading with higher amounts of money to create better opportunities of profitability for yourself. - More than $5,000:
Lastly, any amount more than $5000 would require a seasoned and skilled trader to handle the capital and the relevant risk management. This is where you can get more creative with your trading strategies, as more capital means you can implement various strategies that are not limited by your deposit. Naturally, the chances for profitability get higher as you increase your trading capital. But be careful, because so will your chances of higher loss.
Final Though: How Much Do You Really Need?
With all that has been so far, it is time to ask the ultimate question: so how much do you really need? The answer to this question boils down to you as the trader and you alone. You need to take a look at a number of factors to decide your initial capital:
- Personal Budget: naturally, the first thing to consider is your own pockets. How much do you have at your disposal?
- Trading Skill: remember that the safety of your assets in the market is directly tied to your own skills and expertise as the trader who is in charge of that capital. How much skills or experience do you have in forex trading?
- Trading Strategy: the particular trading strategy that you might have in mind also plays an important role in deciding your capital. Do you have a particular trading strategy in mind? Because while scalping and day trading require smaller amounts, swing trading and such would need more substantial deposits to be profitable.
By considering these crucial factors, among many others, you need to make the final decision as to how much money you need to bring into the market. And as always remember that safety comes first, so do not sacrifice risk management for low potential profits.
