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How Much Trading Capital Do Forex Traders Need?

Are you anticipating to open a live Forex trading account? If so, you require initial capital. Capital in this case refers to the amount of funds that the traders is willing to set aside (deposit into his trading account for the purposes of trading). Forex is one of the financial investments where the investor or trader doesn’t necessarily require too much funds to begin with. Nevertheless, even though you don’t require too much cash for you to start trading, having too little in your account actually adds to the risks of Forex trading. The smaller your trading capital, the more the risk your money is at. A small account can easily be wiped clean especially when the market makes some unpredicted and unexpected movements – particularly during economic news releases.

Trading Capital

There are various factors that affect the amount of capital that a trader requires. These factors include:

  • The broker
  • The type of trading account
  • The leverage
  • The amount of lot size that the trader is planning to use to open positions
  • The trading strategy that the trader is intending to use

The broker

The forex financial market has different brokers that offer trading platforms for individual traders. Each broker has their terms of operation that the trader ought to agree to before opening any account with them. There are some traders that will allow as little as five dollars of capital. However, it should be the work of the trader to check and see that the amount of capital that he or she is investing is safe. It is not always that having a minimum amount of capital is the best option. Too small an amount of capital may lead to losing all of the initial capital.

Actually the minimum amount of capital that the brokers indicate should only be used to help you open an account. Then after you have a validated trading account, you should seek to have a substantial amount of capital in your trading account so as to reduce the risk of getting a margin call. This amount will depend on the type of forex account that you are interested to open.

The type of trading account

The kind of account that you hold will significantly influence the amount of capital that you ought to have. The difference in the type accounts is how much each lot is worth. In a micro account, if you use 0.01 lot size and the market prices moves by 100 points (10 pips), that will be equivalent to 0.1 units of the type of currency that you are using in your account. If you use US Dollars it will be 10c per pip movement. The minimum capital for this type of account is $5. However to be safe, you should have at least $50 for you to trade comfortably without the risk of a margin call.

On the other hand, if you had a standard account , if you open a position using 0.1 lot size and the market moves by 100 points (10 pips), it will be equivalent to 1 unit of your account base currency (currency that you use for your account). This means that if your account is in US Dollars, it will be $1. In most cases the minimum amount of capital for the standard accounts is usually $ 500. However, you will meet some brokers that will require you to have a higher initial deposit when opening your account. But for your own safety, you should at least ensure that you have $ 1,000 in your account.

If you decide to open an executive account the pip value calculation will be equivalent to that of the standard. The difference comes in the initial capital required and the leverage. For most of the executive accounts the minimum is usually $ 5,000. However there are some brokers especially ECN brokers that have mini and standard accounts while others have standard, and executive accounts only.

What is leverage

The leverage

What is leverage? In simple terms, leverage allows the traders to open trades that are worth more than the actual amount of money in their accounts. So, the traders “borrows” some amount of money from the broker. The higher the amount of leverage, the more the trader can open more trades or trades of larger lots with lesser amount of capital. Therefore if you decide to use a small leverage, you have to have a