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Many people understand that forex trading or buying and selling currencies requires large capital. This assumption is not entirely wrong, considering that 1 lot in the forex world is worth 100 thousand units of currency purchased and not 100 shares like stocks. This means, if you want to buy dollars and exchange them for rupiah, you have to spend approximately 1.4 billion dollars first.
In fact, there are several ways to play forex with small capital. Here’s how:
1. Get to know the market with a demo account
A demo account is a free facility provided by a brokerage company so that traders can practice trading before jumping into the real time market. Even though the name is an account for practice, the price movement data in this account is real time data, but you will buy it with fake money provided by the broker for practice.
By using this demo account, you can find out how to trade forex, estimate whether or not the forex and currency trading sessions are crowded or not. the most widely traded. This is important for those of you who trade with small capital because, often forex companies charge commissions and spreads based on whether or not the trading session is crowded and the type of currency being traded.
2. Choose a Brokerage Company That Offers Low Fees
In addition to offering nano accounts, for trading with small capital you can also choose a brokerage company that offers low fees. You need to know that there are two types of fees in forex trading, namely commissions and spreads.
Spread is the cost associated with the difference between the buy and sell prices of forex while commission is a fixed fee that you have to pay each time you open a trading position or when you have not traded with your account for some time. Commission fees and spreads can vary between brokerage companies, so make sure you choose a brokerage company that offers low fees.
Some forex trading brokerage companies also offer programs that such as, a no deposit program or a trading account creation program with no deposit or capital funds given by the company and several trading competitions whose prizes are in the form of additional capital.
Programs like this are indeed attractive, especially for traders with minimal capital. But before creating an account with the company, make sure the legality and convenience of the forex trading application first. Because, it is not uncommon for companies that offer no deposit programs to be small-scale brokerage companies.
3. Start Transactions With Small Lot Volume
It is true that 1 lot in forex trading is 100,000 units of currency traded, but many brokers today offer accounts with a minimum trading volume of less than 1 lot. MIFX, for example, offers forex trading accounts with a minimum transaction size of 0.01 lots or 1000 currency units.
This means, for 1 USD/IDR trade, you don’t need to spend another 1.4 billion but only 14 million. If this is not small enough for the size of your capital, you can look for a brokerage company that offers a trading volume of nano lots or about 100 units of currency purchased.
4. Capital Protection Is Most Important
The forex market is the trading market with the highest level of liquidity worldwide. This means, you can get big profits in a relatively fast time but can also get losses in no less fast time as well.
Therefore, make sure you prioritize capital protection before getting maximum profits. The first way is to look for a brokerage company that offers a negative balance protection program or no negative balance or guarantee that your trading account balance will not be less than 0 (minus). Because, if it is less than 0, the company will send you a margin call and you are required to top up your account balance (additional capital).
In addition to the negative balance protection program, also make sure you have set a stop loss and dare to cut at the right time. Stop loss and cut loss serve to prevent you from deeper losses.
5. Limit the Use of Leverage
Leverage in forex trading is a facility provided by brokerage companies to help traders increase their trading volume. Generally, the amount of leverage is written in the form of a ratio such as 1:100, 1:500 or 1:1000.
This means, you can trade 100, 500 or 1,000 times more than your deposited capital. For example, the forex brokerage company you use offers 1:100 leverage, that means with a capital of 100 thousand, you can buy foreign currency worth 10,000,000 and so on.
On the one hand, the leverage facility can increase the potential profit you can get. But on the other hand, the way this facility works can also create a greater potential for losses.
For example, say you have a mini account with a balance of $500. Then, you open a position to buy euros in the amount of 2 mini lots (20,000 units) using 40:1 (20,000:500) and set a stop loss if the price drops 30 pips. Apparently, EUR/USD fell to touch the stop loss level. If so, then you will lose $60 or 12% of your total capital. This value is obtained from 30 pips x 2 lots where 1 pip is equivalent to 1 USD.
In another case, you have a mini account with a balance of $500 and then you open a buy position in euros (EUR/USD) in the amount of 5 mini lots (50,000 units) with a leverage value of 100:1 (500:1) and place a stop loss if the price drops 30 pips . Apparently, EUR/USD fell to touch the stop loss level. Because you put 100:1 leverage, the loss you suffer is no longer $60 but $150 or about 30% of your capital. This value is obtained from 30 pips x 5 lots where 1 pip is equivalent to 1 USD.
Therefore, if you only have minimal capital, make sure you trade with the right leverage ratio so that your capital does not run out and get hit by a margin call.
How to play forex with minimal capital which is no less important is to keep going regarding money management and discipline. Because it could be that you have a small trading capital but can be successful with good money management skills and high discipline.