Although some forex brokers will allow you to start trading with as little as $1, you will need to deposit at least $12 with a forex company that offers safe mini lots to day trade. The amount of money you need to start trading in a forex account will depend on your broker in the following respects:
- Minimum deposit requirements.
- Minimum trade position size.
- Maximum leverage.
To start trading forex and currencies effectively, you need a forex broker. Attempting to trade forex through a regular bank account or money transfer bureau is too expensive and slow to be considered a logical illustration option. So, the starting point for answering this question is, what are the minimum deposit requirements for a forex broker?
Forex brokers will only allow you to trade with real money once you deposit according to their minimum requirement, which is usually $100 these days. But, there are forex brokers that don’t set a minimum deposit for a forex account, so in theory, you can trade forex with just $1. Unfortunately, if you try to trade forex with such a small amount, you will immediately run into several problems, from minimum transaction size requirements to maximum leverage.
Minimum position size and maximum leverage for forex brokers
Most Forex brokers will only allow you to trade one mini lot (0.01 lot), which equals 1000 units of the base currency. For example, a mini lot of USD/JPY is equivalent to $1,000.
This means you need leverage to place any trade in USD/JPY with a deposit of less than $1,000. If the broker offers 30:1 leverage on this currency pair (usual in the EU), you will need to deposit at least $33.34 to make one trade on this pair.
If the maximum leverage is 50:1 (usual in the US), you will need to deposit at least $20 to place a trade in the USD/JPY. If the maximum leverage is 500:1 (standard in Australia), you must deposit $2 to trade this pair.
Just because plenty of leverage is available to you as a trader does not mean it is wise to use it. The minimum amount of money you need to make one trade in a forex account is determined by the following:
- The maximum leverage offered by a forex broker in what you want to trade (leverage varies from asset to asset and country to country) and,
- The minimum position size you can trade with a broker in what you want to trade (usually one mini lot).
A few forex brokers allow trading with a minimum position size of less than one mini lot. This smaller size is a nano lot, equal to 0.001 of a serving. Continuing our example with a USD/JPY trade, one nano lot is equivalent to a $100 cash position size, so with 100:1 leverage, a $1 deposit would be enough to open that trade.
Forex brokers offering nano lot trading services
FXTM is a regulated forex broker offering nano lot trading. The maximum leverage offered is 1000:1, and the minimum required deposit is $10. Many other brokers offer nano lot trading.
So far, we have considered only the limits set by brokers that affect the amount of money you need to start trading forex. We still need to consider risk management issues, stop losses, profitability and different trading styles, all of which are essential factors in answering this question.
How does risk management affect the size of the deposit in a forex account?
We previously looked at the minimum amount of money you need to enter a single trade. But forex trading involves doing a large number of trades. A position trader who may aim to stay in winning trades for a few weeks or even a few months will most likely expect to take at least ten trades during the year, and traders of shorter time frames, such as swing traders or scalpers, may take many more trades.
Forex trading involves the loss of trading capital. Simply put, there is no escaping it: any trader, even the best forex trader, will lose at least a third of their trades. It is well known that winning and losing traders are not evenly divided: markets tend to have periods of winning and losing.
Every trader should plan for the worst losing streak with at least 20 losing trades. Every trader should also plan for the worst drawdown (the drop from the top to the bottom of the account). When your account loses more than 20%, getting back to the top becomes harder because the winnings need to increase exponentially.
For example, if your forex account declines by 50%, you are making 100% of what is left in your account to get back to where you were before the 50% loss.
Let’s say you want your account to stay at most 20%, and your worst losing streak is likely to be 20 losing trades in a row. You should only risk 1% of your account on each trade. But wait – it is possible to lose no more than 20 trades in a row, but the net losing trades during any significant drawdown could be twice that, with some winning trades in the mix.
This indicates that you should only risk 0.5% of your account on each trade. So if, because of minimum position size, leverage and stop loss requirements, you will need to say $1 for a single trade, you will need to multiply that by 200 to get to the minimum you need to trade in Forex. You will also need to think about how large a regular stop loss you will use.
In addition to losing streaks, traders should worry about sudden, strong price movements causing massive slippages after their stop losses. This usually only happens with pegged or manipulated currencies, such as the Swiss Franc in 2015. This is another reason why it is usually a good idea only to risk a small percentage of your account on any single trade. It is also beneficial to trade in major liquid currencies such as the US dollar, the euro and the Japanese yen.
How do stop losses affect deposit size?
You should only enter a trade by setting a solid stop loss. Hard stops tell your broker when a trade moves against you by a certain amount for him to close the trade immediately. Although stops are only sometimes executed at the exact price when the market is very volatile, it is a handy and meaningful way to reduce your risk and control losses.
Stops should always be determined by technical analysis, not by the number of stops you can afford due to the amount of money you have in your forex account.
For example, say you want to risk 0.5% of your account on each trade, and you want your ideal stop loss to be 100 pips. The smallest position size your broker allows is one mini lot, which, based on a USD-based currency pair, is equivalent to $0.10 per pip. This means that a stop loss of 100 pips would require you to risk 100 x $0.10, which equals $10.
This $10 should be at most 0.5% of your account – you have to deposit $2000 to start trading forex with enough money to make a 100 pips stop loss work if your broker allows trading with only a mini lot.
Make sure to set your stop losses above what you really want just because you can’t afford it with the account size. You should either put money into a forex account, look for a forex broker that allows trading in nano lots or consider switching your trading style, which requires narrower stops. The three forex trading styles are position trading, swing trading and scalping, and we will take each one in order.
How much money do I need for position trading in Forex?
Position traders look for trades that take several days, weeks, or months to complete, so stop losses are usually around 100 to 150 pips. Assuming that you do not want to risk more than 0.5% of your account in each trading operation and that you will not lose more than 20% of the trading account, you must start with a deposit of at least $ 2500 to $ 3750 at a forex broker that allows trading in mini lots, or at minimum $250 to $375 with a forex broker that allows trading in nano lots.
How much money do I need for swing trading in Forex?
Swing traders look for trades that take between 1 to 8 days to complete and usually need stop losses of around 30 to 60 pips. Assuming that you do not want to risk more than 0.5% of your account in each trading operation and that you will not lose more than 20% of your account, you must start with a deposit of at least $720 to $1440 at a forex broker that allows trading in mini lots, or at least $72 to $144 with a forex broker that allows trading in nano lots.
Speculators and day traders look for trades that need seconds, minutes, or even a few hours to complete. So, assuming that you don’t want to risk more than 0.5% of your account on each trade and that you won’t lose more than 20% of your account, you should start with a minimum deposit of $120 to $240 at a forex broker that offers mini lot trading, or At least $12 to $24 with a forex broker that allows trading in nano lots.
Want to start trading forex with $100?
The calculations we discussed above show that it is possible to trade Forex safely with a deposit starting from $100 if you use a Forex broker that offers the ability to trade in nano lots or less. You are a day trader, scalper or swing trader.
Is it worthwhile to trade forex with a low minimum deposit?
The final issue to consider: Is it worth it even if you can safely trade forex with a small amount of money, like $50 or $100? It all depends on how vital these sums of money are to you and how much time and effort you will put into forex trading.
For example, let’s say you double your money in a year. This is an excellent result for any trader and will likely take a lot of work. However, if you start with $100, you will only have $200 after such a great result. You could save this money by making specific changes in your life (such as saving more) without risking your capital.
It may be wiser to wait until you have a more significant amount of money to start with because then such profits will be more important to you, and you will feel that it is worthwhile to put in the effort you are making to achieve them.
Nobody should open a forex account and trade with money they can’t afford to lose. Still, you won’t get excited for long if you’re trading with an amount of money that’s too small and insignificant for you to feel like you care much about the outcome. You need to find a balance that works for your trading style, emotional state, and financial situation.