The basics of opening a trade
There are some forex brokers that let traders start trading with as low as $1. But still, traders need to deposit at least $12 with a broker offering nano lots of $120 with a broker offering micro lots to day trade safely. The amount of money needed to start will always depend on the chosen broker's:
- Minimum Deposit
- Minimum Trade Position Size
- Maximum Leverage
and traders':
- Risk Management Strategy
- Trading Style/Average Stop Loss Needed
- Overall Financial Situation
To trade in forex successfully, traders need a forex broker. Trading forex through a regular bank account of a money changer is quite expensive and slow to be a realistic option.
Also, forex brokers won't allow traders to trade with real money unless they have deposited the required minimum deposit. And these days, it is typically at $100 to $250. But there are forex brokers with no minimum position sizes and maximum leverage. Still, if they trade forex with such a small amount of money, they will surely run into some problems - starting with minimum positions and maximum leverages.
Minimum Position Size and Maximum Leverage
Most forex brokers will not allow traders to trade size smaller than one micro lot (0.01 lots) - worth 1,000 units of the base currency. For instance, one micro lot of the USD/JPY currency pair is worth $1,000; traders will need leverage to make any trade in the USD/JPY currency pair with a deposit of under $1,000. If a broker offers maximum leverage of 30 to 1 on this currency pair - typical in the European Union -, they need to deposit at least $33.34 to make one trade4 in USD/JPY. Then, if the maximum leverage is 50 to 1 - typical in the United States -, they must deposit at least $20 to make a trade in USD/JPY. For maximum leverage of 500 to 1 -typical in Australia -, they need to deposit at least $2 to make a trade in USD/JPY.
Even though they offer a lot of leverage, it does not mean that it is wise to use it. The minimum amount of money traders need to make a single forex trade can be determined by:
- The forex broker's offered maximum leverage in what traders want to trade - leverage differs from asset and country to country.
- The minimum position size traders can trade with the broker in what they want to trade - often one micro lot.
Some forex brokers let traders trade in a minimum position size even lower than one micro lot. The said lower size is one nano lot, which is equal to 0.001 lots. Using the example used above (placing a trade in the USD/JPY currency pair), a single nano lot would be equivalent to position size in cash of $100. Thus, with a leverage of 100 to 1, the deposit of $1 would be enough margin to open the trade.
The Amount of Money to Position Trade Forex
Position traders seek trades that take a
few days, weeks, or months to finish. With that, it often needs to use stop
losses of about 100 to 150 pips. Let's say traders don't want to risk over 0.5%
of their account on any trade, and that they would never lose around 20% of
their account, they must start with a deposit of at least $2,500 to $3,750 at a
forex broker offering to trade in micro lots or at least $250 to $375 at a
forex broker offering nano lots.
