The foreign exchange market is an easily accessible financial market. This is why it does not take much to start day trading in forex.
Day trading is all about price changes.
Some brokers allow you to start an account with a minimum initial deposit of $50. Others do not require a deposit at all.
Factors to consider
You have to consider a handful of factors when determining the amount you need to start day trading.
These are:
- Minimum capital – this refers to the minimum capital you need for day trading in forex. If you want to start immediately, $100 should suffice. On the other hand, $500 is liable to lead to more returns. While $5000 might be the best option to generate a reasonable income. Choose the capital based on your affordability.
- Know the risks – as trading is about price fluctuations, risks involve the price not moving in the direction you want. Therefore, traders should not risk more than one percent of their account on a single trade. Risks will be discussed more later.
- Know your pip values and lot sizes – for starters, prices move in pips (percentage in point or price interest point), and the amounts are sold in lots. Trades are made as micro, mini, or standard lots. A pip is the smallest amount a currency can change. So, if the EUD/USD price moves from 1.408 to 1.409, then it is a one-pip move.
- Stop-loss orders – this is an essential part when trading. Stop-loss orders prevent substantial losses in a case where the price moves in the opposite direction of your bet. You create a stop-loss order at 10 pips, for example, below the current price if you think the price might rise. Conversely, a stop order 10 pips above the current price is kept when it seems likely that the price will fall.
- Find out your minimum capital – we know that different trading amounts influence the minimum amount for day trading. Your income will depend on how much you start with initially. Choose wisely.
Trading risks
Leveraged and marginal trading both increase the amount of risk. They also increase the likelihood of owing more than you began with.
Leverage allows high reward as well, but risks are far higher.
Find out the trade risk by calculating the difference between your entry price and the price you set your stop-loss order. Then, multiply this by position size and pip value to get trade risk.
Risk management
Yes, you can use leverage to fund trades, but success is rarely seen.
The high risk and low success rate point to the fact that it is best to use other trading methods. The one percent rule plays the best for traders incorporating risk into their dealings.
Bottom line
It is essential to weigh the risks and rewards when choosing a trading method.
Leverage-method should be considered last. Choosing your minimum capital for day trading depends on how much you can afford and how much income you want is also vital.
