How Much Money Do You Need To Start Trading Forex?

August 3, 2015 at 3:36 pm

To start trading, as opposed to gambling, you must have a proven trading strategy and a clear objective. Your initial goal should be not to make money but to learn to trade profitably.

With that goal in mind, it is advisable to start trading a demo account first. Once you are profitable and comfortable using the software and your trading system, start trading with real money but trade fractions of a standard lot (see also What Is A Lot, Mini-Lot, Micro-Lot, Nano-Lot?).

Psychologically, trading with real money feels very different from trading a virtual account, even if you only risk and make just pennies.

To determine how much capital you need, calculate your average risk per trade in dollars and multiply that amount by the maximum number of reasonably expected consecutive losses. The resulting amount will be your risk capital.

Add to this risk capital the margin required by your broker for your average trade. The total amount will be the capital you need to start trading.

For example, if my average risk per trade is $10 and I reasonably believe that the maximum number of consecutive losses produced by my trading system will not exceed 30, my risk capital is $10 x 30 = $300.

If the margin required for my average trade is $50, then I would need at least $300 + $50 = $350 to start trading.

Note, that margin requirements differ for different currency pairs. Also, take into account that sometimes you will want to have more than one trade open at the same time. Therefore it would be beneficial to have more money available for the margin.

Once you become consistently profitable, you can increase your risk per trade and recalculate the trading capital requirements accordingly.