Before trading in any trading market, it’s essential to evaluate how much capital will it require. Since forex is a short-term trading market, it doesn’t require heavy investments to generate lucrative profits. However, if you have too little in your account, it can add to the risks of trading forex. A small trading account can be wiped clean in case there are some unpredicted movements in the market. That’s why you need to figure out how much money you should invest to prevent any unexpected losses.
Factors That Influence The Trading Capital
Brokers offer a trading platform to individual traders and each of them has its own terms and conditions, which may require you to pay certain fees. Besides that, you also need to abide by their minimum capital requirements. Some only ask for $5 while others may require more.
The type of account also dictates the amount of capital you need. If you use a micro account with a 0.01 lot size, you’ll need the money to be equivalent to 0.1 units of currency. If you have a dollar account, then the minimum you need is $5, but you should have at least $50 to trade comfortably. On the other hand, you’ll need currency equivalent to 1 unit to begin trading in a standard account.
Leverage allows traders to open trades that are worth more than the actual amount of money in their accounts. In short, the traders borrow some money from the broker. But you need to pay the broker a percentage if you use leverage. So if you use a small leverage, you’ll need more money in your account.
Amount Of Lot Size
Lot sizes directly affect the free margin in an account. For micro accounts, lots translate into a smaller used margin, but for standard accounts, the used margin is relatively high.
The trading strategy also affects the amount of capital you need in your account. If you plan on short-term trading, then you won’t need a lot of money, but for long-term trading accounts, you should have a substantial amount in your account to lower trading risks.
How Much Trading Capital Should You Have?
For new traders, it’s recommended to have at least $2,500 in your account to allow easy trading, but that doesn’t mean you can’t trade with a lower amount. It would just mean that the account would have higher risks. For scalpers, $10,000 is the minimum amount you should have. However, if you’re planning on long-term trading, you’ll need at least $20,000. You’re more likely to get higher profits with higher capital for long-term trading.
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