A very common Forex related question is ‘How much money do I need in my Forex Trading Account to start trading with?’
My initial response is often ‘Have you earned the right to trade a Live Account in the first place?’ Now that may well sound a little pompous but to me there seems little or no point in trying to trade Forex in a Live Account until you have demonstrated that your chosen strategy actually works and that you are disciplined enough to make consistent profits in a Demo Account first.
Agreed that there are big differences between trading a Demo and a Live Account mainly around controlling emotions such as Fear and Greed, but why enter the Live Markets if you haven’t yet established whether or not you have a definitive edge?
However, once you have demonstrated a consistently profitable track record in a Demo account (3 – 6 months or even a year to 18months) then you do need to think about how much money you need to start with. This is my advice:
- Start Trading with a Live or a Spread Betting Account that allows a minimum trade size of 10 cents or a 10p spread bet, because if you blow it up it will be easier to reseed it.
- Only risk 1% (2% Max!) on any one particular trade, which may have several positions.
- If you are risking say 1% on any trade and your average stop loss is about 30 pips and you take each trade with 3 positions then you would need about $1000 minimum to start trading in a Live account as the smallest position size is 0.01 of a Lot or 10 cents a pip.
- 3 (positions) x 30 pips (stop) x 10cents = $9
- 1% of $1000 = $10 so you have a few pips of safety margin in your stops.
- So if trading a $10,000 account, then your average position size would be $1 or 0.1 of a lot and so on.
- You should always be able to adjust your position size to match your stop size and thus maintain the same level of Risk, the smaller your account capital the less flexibility you will have.
- So start in a Demo and whilst doing that set aside money for your trading account and build it as you learn. When you are ready to trade Live then make sure you can manage your risk on every trade.
If you risk too much then you will not survive turbulent markets to trade another day and will eventually blow up your account. If you lose 50% of your original account then you have to double your account to get back to where you started or make 100%!
So my answer is:
- Live Account Minimum Equity = $1,000
- Better to have between $5,000 to 10,000 minimum
- Spread Betting Account:
- £1,000 (if minimum bet size = 10p)
- £5,000 (if minimum bet size = 50p)
- £10,000 (if minimum net size = £1)
For those of you who can’t afford an initial trading pot of $1,000, then I recommend that you save the money, other wise you will be risking too much per trade.
Top Trading Tip: Ensure you have sufficient capital in your account to be able to manage your risk properly so that you can survive to trade another day and do try to minimise your risk to around 1% for each trade.