One of the things that many beginner forex traders ask is how much capital or money is needed for forex trading. This is considering that buying and selling foreign currencies is the same as the amount of money you are ready to sacrifice when you experience a loss.
Why is that? Forex is an investment instrument with a high level of liquidity and relatively only relies on technical analysis skills. This means, to be able to profit from forex, you need to have good technical analysis skills and a lot of trading practice.
So, how much money is needed to trade this foreign currency pair?
Minimum Deposit Forex Trading Account
Of course you need to deposit some money when you first open a forex account. This money or deposit acts as initial capital that you can use for trading the first time.
The minimum deposit amount varies depending on the policies of each brokerage company and the type of account you open. MIFX brokerage company, for example, applies a minimum deposit of IDR 500,000 for the first time deposit for ultra low accounts and 250 million for pro accounts. Another company, Asia Pro, applies a minimum deposit of 500 USD or IDR 5,000,000. So when you start trading, make sure you know what account to open and what the minimum deposit is.
Minimum Capital For Day Trading Forex
Basically whatever trading style you choose and whatever your capital, you should not sacrifice more than 1% of capital. Especially if you are a new trader. The goal is that when you lose, the amount of loss you have to bear is not too much. Because after all, forex trading is not always profitable.
Some sources say that the minimum capital for daily forex trading (day trade) is 2000 USD. This means, in each trade you can sacrifice 20 USD.
With this capital, how much potential profit can you get? Let’s say you limit your risk to 10 pips per trade and open a trade of 2 mini lots. If the trade is losing, you will lose 20 USD. But if you will take profit when the price goes up 20 pips per trade, you will get a profit of 40 USD.
For example, you usually open a position 5 times a day and the winning ratio in 5 trades is . With a capital of 2000 USD you will get a profit of 80 USD ((40 x 3) – (20 x 2)).
Minimum Capital For Forex Swing Trading
Swing trading is a trading style that opens and closes positions when prices rise and fall quite sharply. Therefore, this trading style usually takes up to 1 week or even months.
According to Vantage Point Trading, you should at least sacrifice 20 to 100 pips trading depending on the level of volatility of the currency you are trading. This is because the price changes in swing trading are often quite sharp and risky.
If you want to sacrifice 20 pips, the minimum capital you need is 200 USD. This is because with 200 USD you can open a micro lot position (0.10 per pips movement) so if you lose, you will only lose 2 USD (1% of 200 USD).
Since swing trading requires a longer trading period than day trading, it’s no wonder it will take you a long time to make tens and hundreds of dollars in profits.
Minimum Capital For Long-Term Investment
In the forex world, swing trading is not the only trading style that requires a long duration. In addition to swing trading, you can also apply position trading or long-term investment in forex.
Trading in the medium to long term aims to catch a larger trend of price increases in order to make a profit. On the other hand, long-term trading also has the potential to get bigger losses as well.
Therefore, some suggest that the risk-to-capital ratio, which was initially only 1% for short-term trading, should be increased to 2%. In addition, stop losses are also used more loosely between 300 to 500 pips (not 50 or 20 pips). This is because in the long term the price may drop to 500 pips but then rise sharply to 1000 pips or more.
Because the risk is greater, the investment capital required is also large. With a stop loss of 300 pips and a mini lot transaction (0.10 per pips movement), then when you lose, the money you have to sacrifice is $30. Make sure this $30 is 1% or 2% of your total capital which means the total capital you have is between $1500 to $3000 USD.
Never Risk More Than 1% Capital
In forex trading, the more capital you risk and the higher the level of leverage you use, the greater the potential profit you can get. However, the magnitude of this profit is directly proportional to the magnitude of the risk. That is, the greater the capital at stake, the greater the potential for trading capital to be eroded. Especially if the level of liquidity you use is also high.
Therefore, many expert traders advise not to sacrifice more than 1% of capital for short-term trading and keep 2% for longer-term trading. In addition to minimizing risk, this limitation is also intended so that you can trade more often and get more probability of winning in 1 trading period.
Forex is a high risk trading instrument. Therefore, to be able to successfully gain profits in trading on this one instrument, you must be able to master 3M, namely trading methods or analysis, money management including capital and mentality (avoiding things that can make illogical trading decisions).
Mastery of 3M is not immediately possible. Continuous learning and practice is required. Look for a forex trading platform that is legal and provides various learning facilities needed for trading. That way you can know immediately how much minimum capital you can spend for forex trading and what is your winning and losing ratio in one trading period