Starting Capital needed in trading the Forex Market

Introduction

 

The primary aspect needed when trading the financial market is capital. Capital is applied in purchasing a particular asset if various sources of analysis reveal that the price of that particular asset will increase in value; this thus leads to a gain in capital realized a profit by the trader.

The forex market has the same concept; for a trader to start trading on currencies, there is a need to invest a particular financial backing with the broker. This money is used to purchase and sell currencies.

The amount of capital invested has a direct effect on the size of profit the trader is liable to make; given the same leverage, bigger trading accounts can open bigger positions than a relatively smaller trading account.

Can anyone trade on the Forex Market

In the famous Bretton Woods agreement, which lasted for 18 years since 1945, various prime currencies were related to the value of the US dollar that was in turn linked to the price value of gold. The exchange rate changes were very small making it difficult for an investor to make substantial profits from the currency trade. However, after this agreement, there was a free currency fluctuation due to the effect of supply and demand.

What becomes more intriguing is that even after these agreements the forex market was still regarded as a big boys club; high net worth individuals, investment companies, hedge funds and governments invested in the forex market. The reason behind this comes from the fact that the other traders lacked the required capital to enter the forex market. Things have however changed from then till now as the technological advancement has guaranteed the growth and development of the forex trade; retail traders can now trade on the forex market with a small capital backing from their computer.

Trading on leverage has greatly impacted the role of retail trade in the forex market. Leverage has assisted forex traders in opening much larger positions than their trading account can allow. This factor reduces the need to invest large capital in the market; it also increases the risk that comes with forex trading, leverage can magnify the profit and loss.

How much is needed for an investment in the forex market

The minimum capital required to trade in the forex market is dependent on several factors such as the trading style, the available funds, required minimum deposit for the broker, level of experience, average stop loss among others.

What any trader should is that investing in a particular venture should be one in which the potential of losing should not be a life or death situation to the trader. This means that forex trading is a high-risk trade that has various possible scenarios of failure; it is upon the trader to invest the right capital that will not set back any other plans or ventures. If you don’t know how to make a trading plan, you may use Wallstreet Forex Robot which you can purchase through https://mytradingtools.com/wallstreet-forex-robot/. Wallstreet Forex Robot 2.0 Evolution enable you to profit in Forex market without having knowledge of the market and even knowledge to place an order in MetaTrader.

The trading style also plays a crucial role in determining the amount of starting capital in the forex trade. Scalping trade requires a smaller starting capital as compared to other trading styles; day trading, on the other hand, requires a larger starting capital due to the use of a huge stop loss level that could be hard to maintain with small capital. 

The preferred broker is also a determinant in the starting capital required. Some brokers will accept huge sums while others can accept small capital valuations. Therefore, if the trader is trading on a budget, then the broker chosen should be able to accept and work with the limit of the trader’s starting capital.

The last determinant is the experience of the trader; in the case, the trader is an amateur, a low starting capital is required to get a feeling of the platform and the norms in place. This is different for a professional as the starting capital can be as big as desired.

Advantages and Disadvantages of trading with small capital

Conclusion

So the question that we asked ourselves was the capital required to commence forex trade; there is no single answer to this question. The amount of starting capital required depends on the trading style used, trading experience, the available funds and the average size of stop-loss levels.

In short, the long-term trades are difficult to trade using a small capital while short-term trades can work with small capitals.  

Published at: 30 Dec 2019 10:26 GMT
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