This is a one of the most common questions I get asked. So how much money (trading capital) do you need to start forex trading? There are many variables to the answer, and it falls down to the the situation of the trader. If you want a simplistic answer, then the minimum I would say is 6 figures upwards (starting at $100,000 USD). I’ll explain my reasoning later in another post.
First let’s start off with a question:
What do you want to get out of Forex Trading? A side income? To live off Forex trading? As that will change the amount of trading capital you will require.
If you want to live off forex trading as income, then I would say you really do need a minimum of 6 figures to start out, 5 figures ($10,000 USD upwards) is possible but the emotional pressure may impact your trading and trading results.
As a side income, then how much are you expecting. What are you happy with? 10% a month? 10% a year? To beat the banks and their low interest rates? The answers will impact your dedication to trading.
After answering that question: What trading results do you expect out of your Forex Trading?
When I ask traders this I normally get blank faces and a story from what they read online about a forex trader that and turned $1,000 USD into $1,000,000 USD and became an instant millionaire.
There are very very rare cases like this. That’s the case of expectations vs reality, as the majority of traders lose their money but marketing in this industry has ‘get rich’ written all over it. I remember signing a risk disclosure form with a professional brokerage firm and they were very clear that more of their traders lose than win.
Let’s break down the trading results, for examples sake, let’s say you wanted to get $1,000 USD a month (or a year if you wish) from your trading.
If you started with trading capital of:
- $100. You would need a return of 1,000%.
- $500. You would need a return of 200%.
- $1,000. You would need a return of 100%.
- $5,000. You would need a return of 20%.
- $10,000. You would need a return of 10%.
- $100,000. You would need a return of 1%.
Re-read that. You can play with the numbers, increasing the trading goal to $3,000, $10,000 etc. Really think about which one of those returns is consistently sustainable? Then let me know your answer. If you can grasp this, it will give you an extra edge few traders really understand or have bothered to think about.
As a final note, trading capital is important but what is even more critical is your depth of knowledge and actions towards forex trading are more important. Which comes down to preparation and dedication to your forex trading goal.