One of the questions I get from new forex traders looking to start trading real/live forex trading accounts is this:
How much money do you need to trade forex?
Now, the answers I will give you is based on my own experiences and I will tell you the good and the bad of what I’ve found out for myself.
So what do you think?
How much money do you need to start as a trading capital to start trading forex?
I’m not talking about ” how much money do you need to open a forex trading account or open a trade.” That can start from $40 to $500 and above.
But what I’m talking about here is “How much money do you need to trade sensibly.”
How much money do you think you need in your live forex trading account to start trading sensibly?
Now, I have to be honest with you:
Some of the amounts of money I’ve seen get thrown around in forex forums and websites asking if that amount of money is a good amount to start trading forex with is absolutely ridiculous.
Please don’t be offended and I don’t want kill your enthusiasm.
But I’ve seen amounts of $50 or $100 or $500 or even $1000 as a trading capital being thrown around thinking this will make you are reliable forex income for years to come.
It just doesn’t work that way. And I will tell you why soon.
How I Got Started With Live Account For Trading
Let me tell you a little bit of the story of how I got started with a live account for forex trading.
I started getting interested in forex trading back in 2006 & 2007.
So that year, I spent a lot of time reading about forex trading and educating myself as well as demo trading to get familiar with the MT4 trading platform.
In 2008, I finally opened my first forex trading account with $3,000.
Now to be quite honest, it wasn’t all my money: I put in $1,000, and I convinced 3 friends to contribute the remaining $2000 divided equally among them.
Call it beginner’s luck but somehow I managed to make a profit on this live trading account, increasing it by more than 100% profit in the first 1-2 months. Then I got greedy. At the end of the 3rd month, I lost all the profit as well as the trading capital.
That kinda sucks, doesn’t it?
I don’t know what trading systems I used or what kind of money management I used. Heck! I didn’t really know about trading with price action then!
I did a lot of things wrong:
- I was over trading, over leveraging myself to the hilt compared to the amount of money I had in my live account
- I was risking too much per trade: 5% to 10% risk per trade. When the trade went well, I made lots of money, when it went bad, I lost lots of money. I didn’t really understand trading risk management.
- I really didn’t know what trading system I was using: I think it was a kind of situation where I look at the chart and think to myself: Oh, this chart looks like the price is going to go up. So I’d buy. If I thought that the price looked like it was going to go down, I would sell.
- My trading was really all over the place.
So was a $3,000 trading account the right trading account size for me to start trading forex with?
Well, to an extent, yes.
Over the years, I’ve increased my stake up to a maximum of $10,000 on a few occasions. And the same result: I lost it all.
Then bruised and battered, I would quit forex trading for a while. Thank God for my job, I can still pay the bills, put food on the table, and keep the wife happy!
Then one day I would open the mt4 trading platform just to see how the forex marketing is going on the charts.
Next thing I know, I would deposit sums of $250 up to $1000 just to trade with a small amount “for now” and see how it goes.
Losing $250 or $1,000 wouldn’t hurt too much, would it? Wrong!
Over the year, when I add up all those “little” deposits that I’ve made to trade forex on an ad-hoc basis, and they would vary between $5,000 to $10,000. 🙂 Painful. Not funny at all.
You see: If I lose $250, I’d most likely lose it within 1 week. $1,00o would probably take 1-2 weeks for me to get greedy and blow it all up.
Did I make profits on those trades? Heck, I did!
I’d trade them to 100-200% profit and then so I’d like to increase my account fast, so I’d take a large risk per trade to make more and all it takes is one trade to go wrong and I’m back to zero!
I Have A Problem With Trading Smaller Forex Account Sizes
The problem for me now is that, psychologically, I am not satisfied with trading 0.1 lots or 0.01 lots which would be typical if you have an account of at least $250 up to $1,000.
I’m not satisfied with making profits of $10, $50 or $100 which would be typical of trading such smaller sized forex trading accounts.
Why? Because I’ve traded larger account sizes between $3,000-$10,000, I would rather trade an account size where I can have the chance to trade 1 standard contract and risk an amount significantly larger to make a larger profit.
I just don’t have the patience to grow a $250 forex trading account to $5,000. That’s my nature and that’s why I do not like to put myself in that situation again.
For example, I will place a 0.1 contract trade on EURUSD and make $250 profit. Then a voice inside my head will be saying: “Man! If I traded 1 contract, my profit would have been $2,500!”
So every time a place a trade and make a small profit, all I will hear in my head is “If I had the money to trade 1 contract, my profit would be $x,xxx!”
So eventually, I will see a trade setup, take a very large risk on one single trade in the hope of making it big so that I can increase my trading account fast, and guess what happens?
It turns out a big loss for my smaller-sized trading account which wipes me out and I would not have sufficient capital to open another trade again.
That’s why: for me, the forex trading account sizes that I’d be happy to trade with are any amounts form $5,000 and upwards.
The Issues With Trading Smaller Account Sizes
Now, I know, some of you may argue that the account size does not matter, whether you are trading with a $250 account or a $1m account.
A risk of 2% per trade on each account is simply the same thing (except that the amount risked will vary).
And so, anyone with good risk management and trading practices can increase a small stake of say, $250-$1000 trading account up to a significant over time aided by the power of compounding.
I agree…it is quite possible.
For me, I just don’t have the patience to trade a small account because my expectations are not satisfied with trading a smaller account.