All of you have repeatedly heard that the daily Forex market turnover reaches several trillion dollars. This is great, but not all of us are dollar millionaires. So with what amount can you start your path as a trader in Forex?
If a beginner trader belongs to that category of people for whom the loss of several thousand dollars is not a significant amount, then it makes no sense to read further. We’d like to show and determine the minimum threshold that is sufficient so as not to “fly out” of the Forex market ahead of time and acquire the skills of speculation with “small losses”.
The minimum deposit threshold depends on the following factors: type of account, trading style and trading system.
Further we will analyze them in detail.
At the dawn of the creation of the Forex market, back in 1976, all national currencies traded against the dollar, so the record of instruments is always presented as a pair of currencies, where, with rare exceptions, the dollar is always in the denominator: EUR/USD, GBP/USD, etc.
Forex brokers operate with a standard currency value of 1 lot, containing 100 thousand units of currency, which is in the numerator. The figure is amazing, but brokers divide this figure by 100 and even by 1000, providing leverage.
This is just a unit of measure: just like potatoes are measured in kilograms, at Forex, the sizes of positions are measured in lots.
Any trader who opens a standard or classic account will be able to buy a pair for $1000 (plus or minus depending on the current rate, but do not be alarmed by the amount, we remember about leverage). Brokers are allowed to split a standard lot, the minimum transaction amount is usually 0.01 lots.
What does this mean in practice? To open a minimum lot of 0.01, you will need a minimum of $10 (in the case of a leverage of 1:100).
Is $10 enough to start a trade? No.
Looking ahead, we can immediately say that for a full-fledged trading with an effective money management and for almost any trading strategy, $100 deposit will be enough.
Will you get rich by starting with that amount? Unlikely. But it will be enough for full scope trading on the classic types of accounts for most trading strategies.
This is not the limit of the minimum deposit, some forex brokerages go further and offer cent accounts for their customers. They transfer in cents the deposit transferred by the trader, which turns $1 into 100 units, leaving the same dimension of 1 lot. To buy a currency pair, an amount of 1000 cents, equal to $10, is already required. Sometimes brokers put a limit on the "cent": the lot is not split below the tenth of a share - 0.1.
Based on the above minimum amounts for Forex transactions, we can conclude that this market is available to anyone who wants to trade currencies. Opening an account does not require any significant funds at all, and the amount of $1 in a cent account will allow you to open the first transaction.
Traders choose a cent account in the rare cases that will be indicated below. Only a classic account can bring a visible profit/loss effect and let the trader feel the emotional tension of excitement, greed and fear of losing funds. Therefore, you should focus on the size of the minimum investment of $10.
However, this minimum threshold is not enough for speculation: the task of the trader is to learn how to trade, check the strategy, and achieve stable deposit growth. You will also need a stock of funds on the trading account for losing trades, plus some funds that would cover the right to make a mistake.
How much you need to add to the cost of the minimum lot depends on the type of trading strategy, type of tactics and the trading system used by the trader.
But, again, for those who do not want to read further, we can say that at least $10 will be enough for manual trading on a cent account. It will be something like an advanced version of a demo account.
However, as a rule, cent accounts are not used for manual trading. In 99% of cases, they are used for trading advisers.
How does the minimum amount of investment for Forex trading depend on the chosen tactics and strategy?
In most cases, a novice trader chooses “manual trading”, searches for and finds a strategy based on the indicators or does not use technical analysis at all. Any suitable trading system must be tested; in this case, the expected losses determine the required minimum deposit amount. But often the chosen type of strategy does not imply an automatic test, and in dreams of future huge profits, the trader decides to immediately begin trading.
Empirical studies indicate that a beginner should not exceed the minimum lot size of a classic trading account, i.e. trade more than 0.01 lot. Moreover, the deposit must withstand 10 losing trades in a row.
In the Forex market, stop-loss sizes range from 10 points for aggressive intraday scalping trading to 100 points with medium-term positions. This is due to the relative constancy of the statistical range of fluctuations of major currencies, which can be measured using the ATR indicator.
Please note: for 9 years, the market only showed a volatility of more than 100 points for a year and a half (on the example of the daily EUR/USD chart).
Given the size of the cost of a point in the region of $0.1 with a lot of 0.01, the maximum loss per transaction will be $10. We multiply them by 10 possible losing trades and get the necessary minimum for the start of trading.
Thus, the minimum deposit amount on Forex for manual trading is $100 in a classic account.
This will allow you to withstand the drawdown in almost any strategy, including the drawdown made by the trader due to inexperience, carelessness or because of emotional stress. Many of the novice currency speculators are trying to avoid these mistakes by using Forex trading advisors.
They are only right in terms of the flawless execution of the trading algorithm. If the program code does not contain bugs, which can easily be checked in the tester, transactions will be completed without errors. Errors will occur during start-up, shutdown, setting of advisor parameters, therefore, the robot will not give a gain in terms of margin of safety deposit.
The minimum Forex deposit for automatic (algorithmic) trading is also $100 in a classic account.
The only exceptions are strategies for building order grids, especially those that use Martingale tactics. They allow the opening and simultaneous presence in the market of a large number of transactions, which accumulate and multiply losses.
Many types of such robots are examined on various Forex forums, and in each review there is a section of money management where the size of the minimum deposit is indicated. Thus, a trader needs to run such advisors only on a cent account with a minimum lot.
Again, given the specific features of this type of advisers, you should follow the recommendations for each specific robot. But if you take the average “temperature in the hospital”, most likely you will need at least $100 in a cent account to trade an adviser using a grid of orders and/or martingale.
The minimum deposit amount on Forex for automatic (algorithmic) trading according to the strategies of Grid and Martingale is $100 in a cent account.
Please note that the amount of money at the start does not play a role for future income. To correctly use the feature of the Forex market that allows you to “spin up” with $100, you need to stop reading articles about overclocking a deposit. Forget about profit, look for a classic, time-tested trading system, keep an eye on losses, avoid mistakes - this is an easy way to ensure that you get constant income in the Forex market over time.
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