How Much Money Do I Need to Trade Forex?

One reason that Forex holds such an allure to many beginning traders is that the entry barriers are much lower with this market than most others. This is a huge advantage to those who do nщt have a lifetime of savings stockpiled for trading stocks or some commodity futures. So how little can you get away with entering the market with? Can you really trade responsibly on so little? You may have heard many experienced traders state that it is foolhardy to enter Forex with less than $10,000. Is this true?

There is a good reason for the assertion that $10,000 is the minimum Forex bankroll — but that does not mean it really is the minimum. A lot of it comes down to your trading style, your money management skills, and, most of all, your self-discipline. The fact is that you should not be trading more than $2.5–5% of your account on any given trade. Yep — that means not using all that leverage! Most successful professional traders risk very little of their accounts on any trade. For beginners this is especially critical. You are very likely to blow your account if you do not.

What this means is if you open an account with say $1,000, you will be risking about $25-$50 per trade. If you trade the dailies and take only a couple of trades each month, do not trail stops, and get out at 1:1, this limits your profit each month to perhaps $100 at best. It is very hard to be patient and keep trading so little when you are making almost nothing from your trading. Most Forex traders lose their discipline and end up risking 10–20% per trade or even more — actually, for a lot of traders, 10% would be a modest investment. Many novices invest much more than they even have in their accounts to begin with by using leverage. These traders can blow their $1,000 accounts with just a single bad trade.

If, however, you do have the patience to go the long haul with risking 2.5–5% per trade, then by all means, you should go for it. You can open an FX account with just a couple of hundred dollars, and certain brokers will allow you to trade as little as you want — even a penny. Whether you wait and build up capital and then start trading (after lots of demo testing) with a larger bankroll or you start small and trade with patience, you will get plenty of practice. So how much do you need to really get the ball rolling? That depends completely on your trading method and how many trades you will be able to take each day or month. You will definitely want to be using another source of revenue to pay your bills though while you are starting out with currency trading. Using the example above, it will take you a few years of consistent profitable trading to work up to $10,000 from the $1,000 you start with, but the same trader who starts out making $100 a month will theoretically be making $1,000 a month once that bankroll increases to $10,000. Exponential gains start out slow and small but end up big — so whatever you decide to do, approach the FX market with discipline, patience, and faith in your method and yourself.

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