Are you planning to start investing in forex market trading? Are you confused about how much investment is required to start your forex trading? What forex trading strategy should you follow to get maximum return on your investment?
Then you have landed on the correct page. This article is all about Forex trading tips for beginners. If you do not want to invest much then there are few things, which you must know before forex market trading.
Minimum Capital required in forex trading for a small investor
Forex market is quite a volatile market driven by a few factors like interest rate, inflation rate, speculations, government debts, countries GDP, terms of trade, etc. It is advisable for a forex day trader not to risk more than 1% of their account on one particular trade. For example, if your forex day trading account is $10000 then you must risk only $100 on a single trade. Risk is mainly determined by calculating the difference between your entry and stop-loss price, which is then multiplied by pip value and position size.
There are no such guidelines set for minimum capital in forex market trading. You can start trading at approximately $25000. The forex market generally works in pips. Pips are 1/100th of 1%. For example, if GBP/USD is priced at 13.2456, the fourth decimal place denotes pips. If the price moves to 13.2457 than that is a movement of one pip but if it moves to 13.2556 it is a 100-pip movement.
In the forex market, most of the investors trade in the micro lot (1000), mini lot (10,000) and standard lot (100,000). According to a leading forex pips provider, beginners should open their account in micro lots. Micro lot account provides more flexibility keeping your risk below 1%.
A scenario for Forex Market Trading
Depositing a very small amount like $100 is not recommended by many forex stockbrokers as it increases your risk and will not give you any return. Opening your account for a minimum $500 is what all brokers recommend. If you have a $500 account, as per 1% risk factor you can risk $5 on each trade. This is a more flexible option as you can set a stop loss 10 pips away from your entry price, and take five micro lots in that amount. If you set stop loss 25 pips away than you can buy 2 micro lots. The more the stop loss, fewer lots you can buy.
You do get Leverage on your account. For instance, if you hold an account for $5000 then you can trade for $62000. This leverage is provided by various stockbroking platforms. Moreover, trading using leverage can be risky for you as there are high chances of you losing more than your initial investment.
Major Forex Currency Pairs to Trade In
There are many forex currency pairs to trade in but there are major four currency pairs with the highest volume where the most numbers of people trade in.
- EUR/USD: Euro and U.S Dollar
- USD/JPY: U.S Dollar and Japanese Yen
- GBP/USD: British Pound and U.S. dollar
- USD/CHF: U.S. dollar and Swiss Franc
Investors can start trading with the minimum capital of $500 to $1000. This capital range provides more flexibility. To trade with this capital minimum 1:100 leverage is required so that all risks could be managed. This helps small investors to build profitable return on their investment. This requires discipline and a proper forex trading strategy.
Common Mistakes made by small investor in forex market
- Most small investors trading in forex market does not understand the use of leverage. Over using your leverage can get you in huge losses.
- To make high profit, investors ignore stop loss. This can be harmful practice for a small investor as there are high chances of making more loss than you can afford.
- Not considering 1% risk management factor can get you in trouble. Do not go all in with your investment on a single trade.
- Choosing a wrong broker and anticipating news is something which most of the beginners and small investors does.
- Many small investors invest in multiple correlated trades, which can cause them huge losses.
- Not trading with a proper plan and forex trading strategy is the reason why most trader bear loses.
Choosing the right forex trading platform and right forex pips provider is quintessential to survive in forex market trading and make profits. There are many platforms like Onada, Forex.com, Ally invest which you can choose to trade with. A company like FX Pips provides profitable forex signals, which you can rely on.
However, the forex market is a highly volatile market but it has many opportunities for all. From small investors to HNI investors every one can earn money and make high profits. In conclusion, it is important to understand the basic forex marketing strategy and choosing the right forex pips provider.
As quoted by a leading investor, “Confidence is not “I will profit on this trade.” Confidence is “I will be fine if I don’t profit from this trade.” Choosing the right capital and using your leverage wisely will help you concentrate on money management which will in return build a profitable business for you.