If you’re an aspiring world forex trader, then you’re probably wondering how much capital you need to get started. But that shouldn’t be a grave concern since some brokers allow you to open accounts for free and some, with as low as $5. This kind gesture has enabled people to get started trading, but how efficient is it in your quest to grow an income?
On a basic level, you are advised not to trade more than 1-3% of your capital on a single trade. The wisdom behind this is to avoid blowing up your account since the gain is not promised and the loss is inescapable.
So, let’s assume that you have a capital of $50. That means that you should set your stop loss at five pips with a position size of 1 micro-lots to avoid risking more than 50 cents (1% of $50). This could give you a profit of $1.5 if your take profit is 15 pips. You agree that with this capital, the loss is easy and profit is both uncertain and miniature.
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So, the question is, how much money should you spend on forex trading to earn an appreciable return? There isn’t an exact answer to this since there are different types of trading, each with their motivations, goals, and leverages.
A scalper will have a different trading goal from a swing trader. Some traders would love to make a career out of forex, while others trade at their convenience. Some would want to learn the tricks of the trade by gradually building their accounts to sizable capital.
People who go into forex do that to earn a sizable amount of money. So, it is safe to conclude that the amount of capital you trade with will directly impact how much profit you can make.
Below, we have drawn up rough capital estimates that different traders can take to ensure a decent profit.
If you’re a day trader, we encourage a capital of between $2000 – $5000. Let’s take an example keeping in mind the 1% risks on every trade.
For a capital of $3000, see the analysis below:
Since swing traders are leisure-time traders, it is advised to take pips between 20 to 100pips. You want to hold your position for a longer period as the market goes through oscillations of highs and lows. A lesser pip will close your trade sooner, and you won’t benefit from the longer-term market moves.
Let’s take an example keeping in mind the 1% risks on every trade.
If your capital is $5000, see the analysis below:
For longer-term trades, you can afford to risk a little more than 1% (2-3%). The entry pip size should be somewhere between 300-500.
See the analysis below for a capital of $5000
The given figures are hypothetical, and you can use amounts as little as $100. However, it is best to grow that account gradually over some time before taking more lot sizes.
Like every other business or investment, the profit is often always dependent on the capital invested. Although there is no ideal capital, we advise you to invest based on how much time you can dedicate to watching the market. Also, consider how much you intend to make out of it.