Understandably, novice traders ask numerous questions at the beginning of their careers, and this approach cannot be called wrong. First of all, newbies to the market are usually interested in how much money they need to start trading stocks or what kind of deposit they need to start trading currencies. The thing is that no experienced trader will ever tell you exactly how much money it is better to start trading – this question has many nuances. Further on, we will try to grasp the subject in detail.
How Much Money Do I Need To Start Trading Stocks?
People wishing to tie their lives to the stock market, first of all, ask the question of how much money you need to trade in the stock market. In practice this question can be divided into two:
- What deposit is needed to open a brokerage account?
- How much money do I need to trade in the stock market?
The answers to them, oddly enough, are radically different. Let's start in order: to open a brokerage account you need to make a minimum deposit, which varies from company to company. Some brokers limit the minimum deposit to significant amounts, such as $100. Although it is worth mentioning that brokers of the stock market in the USA today have a minimum deposit of $25 000. Still, practice shows that many brokers set limits of 250-500 USD because it is almost impossible to trade with smaller deposits.
But how much money you need to trade stocks is another question. The fact is that the stock market is far from being the most profitable and one should understand that the probability of investing 50 dollars into it and earning 1000 tends to zero. A good month is considered a month in which one managed to earn 10-15% of the invested money and a normal month is when the profit is at least 5%.
Accordingly, it is certainly possible to buy shares in AT&T and Intel for a couple of hundred because their price is currently under $30. However, getting any tangible income from such a deal is unlikely.
For a beginning investor, we advise counting on the initial deposit at the broker for 300-400 dollars (pay attention that we take into account leverage here). In this way, it is necessary to deposit the amount of money to the brokerage account that:
- One wants to receive an income in the range of 5-15% per month.
- The trader is ready to part with.
Exactly so, since trading at the exchange is a very risky activity, so as soon as the sum has reached the brokerage account, the investor must stop counting on it in normal life. This is the only better way to determine what kind of deposit for trading stocks is needed. It must include the amount of money that the investor is ready to risk and if the use of leverage is planned, also a sufficiently significant "safety cushion" in case of the need to wait out the losses. If the trader is seriously planning to make long-term investments and try to build a balanced stock portfolio, one must be prepared to invest considerably more than $500.
As a rule, deposits for such activities start from $500, especially if a sufficiently diversified portfolio must be assembled.
What Deposit Is Needed For Forex Trading?
The forex currency market is considered to be much more promising in terms of profitability, however, the risks are much higher than when working with stocks. Many forex brokers allow their clients to open an account with just one US dollar. In this case, the important thing, as well as in trading stocks, is not the minimum amount to open an account, but what kind of deposit is needed for trading currency pairs.
The Fact Is That There Are Three Types Of Lots At Forex:
- The standard lot is the same for everyone and is equal to 100,000 base currencies. Of course, not everyone can buy so much, even with a sufficiently large amount of leverage.
- The Mini lot is 0.1 of the standard lot and is equal to 10,000 of the base currency.
- Micro lot makes up 0.01 of the standard one and equals 1,000 of the base currency.
You can try your hand at trading with such volume even with 200 dollars, but you need to be extremely careful with the use of leverage because with such a small deposit it is very easy to go broke after opening a trade with high leverage for a good part of the deposit, the trade can go into deficit for which the balance of the account is not enough. So when using leverage and micro lots, trades can be opened from $3-5.
It is necessary to understand that a trader should not strive for the minimum amount of the deposit, because trading on the currency market, as a rule, involves a leverage of 1/10 to 1/1000, which in the appropriate proportion changes not only profit but also losses, which many beginners forget about.
It should not be forgotten that losses (as well as profits) when trading with 1/100 leverage will be exactly a hundred times greater than when working without it. For this reason, it is imperative to keep a large enough reserve on your deposit, while using only a small fraction of it to trade. Classical risk management implies using from 2% to 10% of the deposit in a single trade, depending on the aggressiveness of a strategy. Using a larger share is theoretically possible, but highly discouraged by most existing strategies because of the excessively high risk. Accordingly, if you plan to buy one lot, which will require 10 dollars, the minimum amount of the deposit must be from 100 to 500 dollars.
At present, the financial market provides participants with a wide variety of instruments to trade and there is no need to deposit considerable funds into the account at once. Nowadays many brokers are striving to make the minimum deposit as small as possible for the sake of attracting clients. However, in fact, what kind of deposit is for trading at the exchange depends only on the abilities and ambitions of a trader.
Trading stocks or currencies is possible with only a few tens of dollars on the account, but to realize a significant part of trading strategies and to count on any significant profit, one will have to invest much more.