People often ask how much money they need in order to start trading Forex and the answer can be either nothing at all, very little or a lot. Sounds ambiguous? Well, let me explain”¦
Let’s start for free!
To start your journey and get your feet wet, brokers offer a free demo account, which allows you to experience the world of Forex without risking a dime. Granted, this isn’t a way to make money in Forex per se, but it is a great way to acquire knowledge, a commodity just as indispensable as money when you begin trading.
Little money
Most brokers nowadays offer to open an account for a couple hundred dollars, making the barriers of entry extremely low. On top of low deposits, brokerages offer high leverage opportunities, allowing traders to take on sizeable positions with very little money. Keep in mind however, the more you leverage, the higher your risk, so manage your risk wisely, use sensible money management and never trade beyond your means.
Make a living
Let’s think that making some extra miney is not enough for you and you want to make a living out of trading Forex. Let’s assume you need US$50,000 to live (pre-tax) and that you’ll make 10% per year on your risk capital. Let’s also assume that you will be drawing out 50% of your profits each year. This means you’ll need to make $100,000. To achieve this scenario, you will need a working capital of $1 million.
Whether you decide to start big or small in Forex, the beauty of it all is that it is a completely egalitarian market in which small players and big players play nicely alongside each other. Remember though that success in trading FX is measured in the long run and to keep winning in the long run, your goal should be not to have your account wiped out, so in determining how much money you should invest as risk capital, look at past events which have negatively affected the market and your favorite currency pairs and see if your risk capital would be able to withstand such price hits if they were to take place in the future.
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