How Much Capital Do You Need for FX Trading?

FX Indicator

It is very easy to open an FX trading account with limited amounts of capital.  However, you have to consider what the proper amount of capital is for your trading.  For many traders the amount you need for opening an FX trading account is not the amount of capital that you need.  It is important that you consider what the proper amount of capital is for the FX trade.

What You Need to Look For?

The first thing you need to look at is what you are going to be doing on the FX market and what you want to get out of it.  If you are looking to start a career as a trader then you will need more capital.  However, if you are testing out the market in the view of one day having a career in trading then smaller capital is better.  The amount of capital that you use is proportionate to the returns you are looking to get.

The Returns on Your FX Capital

The saying that money makes money is very true when you look at trading FX.  The more capital you have the more you are going to be able to make on a trade.  The reason behind this is that certain FX trading accounts require larger capital to open.  There are three retail trading account that you can open and they have different minimum deposits.  The standard account is the one that will make you the most in returns because you need the most capital.  The mini account is the medium account and requires less capital.  The account that requires the least amount of capital is the micro account, but you will not be able to make much profit with this account.

Each of these accounts has different lot sizes that you are able to trade with.  The standard account has standard lots which have a value of $10 per pip movement.  The micro account only allows the use of micro lots which have a single pip movement value of 10 cents.

What Are the Risks of Capital?

When you look at trading you have to consider the risks involved.  The more capital you have the lower your risks should be.  This is related to the use of leverage and the buffer amounts that you have when you are trading.  Expert traders state that you should never risk more than 2% of your trading account on a single trade.  If you have a capital amount of $1000 then the 2% is $20.  However, if you have a capital amount of $25 then 2% is only 50 cents.  It is not possible to make the same amount of profit with these varying amounts.

You also have to consider the impact of leverage.  When you use leverage with a small amount of capital then you are increasing the risks to high levels.  However, if you have a larger capital amount then the use of the same amount of leverage will be much lower.

When you consider how much capital you need you have to think about the returns you are hoping to make.  You also have to think about your risk tolerance and how safe you want the investment to be.

 

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