This is one of the first phrases I searched myself when I was looking to trade forex. Because who wants to just throw in $5k into something you don’t know too much about. This is the case a lot of the time when you see someone talking about making a ton of money in forex the usual baseline is $5k to start. So is this really the case or can you start at much less?
Can you trade forex with just $100? Yes of course you can and you can make money. When it comes to forex you need to look at things in percentages. Whether that be a daily or weekly goal but you need to set a legitimate percentage to your ROI and stick to it so your account consistently grows and you will get there.
Trading With Smaller Accounts
So let’s say you set 8% weekly which is absolutely doable. Are you going to make as much money as someone that has $1k or $5k in their account starting and getting an 8% return weekly of course not. This is why a lot of people say to start with a bigger dollar amount. It is a fact that you can make a lot of money with a smaller account but what is going to more than likely going to be that individuals downfall is their patience and keeping their risk to reward ratio at a correct amount.
I have a spreadsheet available that you can look at that gives you all the mathematical equations you need to figure out what you can make in forex if you just set a moderate percentage goal and stick to it.
So if you invested $100.00 into forex and were able to get a 2% daily return for 20 days a month which is absolutely doable you would make around $50 or 50% ROI which is amazing. Look at your savings account and see if you can get that.
Now Forex does have risk and you aren’t going to win every trade. That is where your risk to reward and having demo’d for quite a while come in.
You need to demo as long as it takes in order for you to be consistent at winning. I am not saying you need to be 8 to 9 out of 10 but that would be a nice win rate. Because when you go live you will have to deal more with the emotional side of trading then ever before.
If you keep your risk-reward ratio at a very good rate of at least 2:1 but 3:1 is much better you will be sitting much better. This is due to the fact that even if you only win let’s say 6 out of 10 trades you can have a great chance of getting to your ROI goal.
I will go over this quickly here as I have other articles I am going more into depth on this because it is one of the most vital components. When you are demoing make sure you are practicing your risk management as you would live. Also let’s say you are only going to be putting in $100 dollars into your investment portfolio at some point please demo as if you only had that $100 dollars to put in.
How much should I risk per trade?
I get asked this all the time and it comes down to what you are comfortable losing per trade because you again aren’t going to win every trade. I always tell everyone to start out at 1-2% risk when starting out. You may think this doesn’t sound like much as with a $100 account this would be 1-2 dollars. But if you are going to make $3 dollars for ever $1 risked that sounds much better doesn’t it?
So 1-2% is a great place to start. I risk anywhere from 2-4% based on what kind of trading strategy I use whether it is short term or long term mainly. I have strategies where I win 8-9 out of 10 trades and others where it is closer to 6-7 out of 10.
Another thing you need to understand is that your risk will not be the same after every trade you lose or win your risk management should change. Let’s say you just started and have one your first 2 trades with a $100 account. You risked 2% on each and won both at a 2 to 1 risk/reward ratio. That means you would have gotten a total of $8 or 4% ROI.
Now you see a nice opportunity for a 3rd trade you would now be risking 2% of the $108 and not the original $100 this is where the compound interest effect comes in. Things can add up quickly but you should always try to stick to your trading plan and don’t overtrade either.
So to finish up on Risk Management. If you can consistently get a 2% ROI 20 days a month (at least 20 trading days in every month) you can make a lot of money over time which means you need to be patient and stay disciplined. Again a lot of trading comes down to mental game and I suggest reading or listening to books at least 1-2 a month if not more until you get it under control. Never stop reading once you start continue to develop that mindset.
Here are some stats that you can get yourself on the spreadsheet. Again after 1 month 2% ROI daily you should be at 50% return or $150. This is based on net gain average of 2% daily and I know there will be days where you don’t trade that is why it is average. I am rounding to nearest dollar on the below calculations.
Month 2 = $223
Month 3 = $332
Month 4 = $493
Month 5 = $732
Month 6 = $1,087 <= in 6 months you have 10X’d your account amazing
Month12 = $11,702.49
Again these are just calculations basically by year 2 you will be a millionaire at this rate. Is it doable yes but will most do this of course not. Because it isn’t easy and it is mainly because of the emotional side of trading not the technical side.
Check out the spreadsheet to do your own calculations the daily goes out a year where the monthly goes out 6 years. It will also calculate lets say if you put in an extra 100 dollars a month to your trading portfolio.
There are risks with trading that is why I always say to demo, demo, demo. Get your VOT in and get your head right. Anybody can honestly trade in the forex market you just need to leave the emotion at the door.