One of the most common things to think about when somebody wants to start trading forex is the capital. Having the right strategy, platform and broker are all very important but it all starts with how much money you are willing to risk.
Everybody is different, so the capital depends on each trader. A day trader requires a smaller capital as compared to a swing trader. Also, the capital you need is also directly related to your desired goal or profit.
Why Does It Matter?
Does it matter if you start to trade forex with a capital of $10 or $1000? The simple answer is YES! One of the most common problems encountered by new traders is having not enough capital for the trade they want to open. This usually happens because a lot of online trading sites require as little as $10 to start your trading career. However, if your goal is to earn a lot from trading, turning $10 into hundreds, thousands, or even millions is close to impossible. It’s a fact that when you start trading, the main goal is to earn profit and you can’t get large profits with small capital since the profit is related to how much you are willing to risk.
It is best to set a percentage on how much you should be spending per trade based on your capital. Some traders suggest 1-3% of your capital should be allocated per trade. By following this strategy, it is possible to earn a few dollars per day and slowly build your account. However, most traders don’t want to earn a couple of dollars per day and end up risking more than what their account can handle with hopes that they can turn it into thousands of dollars quickly. There is a chance that it works but more of the time this type of risk ends up with a $0 account balance.
Another problem that happens when having a small capital is the flexibility you can get with it. You are limited to being an active trader whether you like it or not because you are hoping to catch a good price change in your favor. New traders are advised to save money and develop a trading strategy so they can check how much capital they need rather than starting a trade and rushing it.
Remember that you should be realistic if you want to trade forex. Also, strictly follow risk management strategies to minimize your losses. Ideally, it is best to start with $500, but again, it will be based on your strategy and goal. If you want to try out a trade just to be familiar with how things work, open a demo account. This will allow you to be familiarized with everything without risking a dollar.