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In today’s episode, you’ll discover how much money you should start with to trade Forex.
So listen to it now…
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Hey, hey, what’s up my friend?
In today’s episode, I want to talk about how much money you should use to start with Forex trading.
Now before we go into that topic, I want to share with you a very important thing.
1. Don’t get into trading when you are in debt
If you have immediate loans to pay, if you’re currently chased by loan shark don’t get into Forex trading.
Forex trading is not like having a job, where it pays you consistently every month.
In fact, for any type of trading be it options trading, day trading, swing trading, whatsoever, it’s not a job. It’s not going to pay you a fixed amount of money every month. There’s a high probability of loss on a month-to-month basis.
So if you have loans to pay, your debt that needs to be paid, Forex trading is not the way out because it’s going to make things worse. You might even aggravate the loss to an even larger loss and you’ll still be owing people money.
That’s the worst kind of scenario to be. That’s financial suicide.
So if you fall into that category please don’t get involved with trading.
2. Don’t get into trading when you can’t even survive
If you’re barely surviving even though you don’t have much debt, you can barely put food on a table, you have difficulty paying for your kid’s tuition fee, giving your kids allowance, then don’t get involved with trading.
Trading doesn’t give you any assured guarantee like a job, where you have a fixed amount of money coming in each month. If you don’t screw up too badly, you should get a paycheck coming in every month.
But that’s not the case for trading. If you screw up, you don’t get a paycheck. Instead, you’ll dig a hole that gets larger if you do the wrong things in trading.
Maybe you start off with $500 in your account, you might end up with $100 because you lose $400 that month. That’s possible in trading.
So, if you have difficulty putting food on the table, don’t get involved with trading.
Let’s say you don’t belong to any of these two categories. Maybe you’re someone who has surplus capital. You inherit maybe $50,000 from your uncle, maybe he struck the lottery and you want to learn about trading.
Should you use that money? How much of that money should you put into your trading account?
3. Start trading with a small amount of capital
My suggestion is if you’re new to trading, new to this endeavour. Put in as little money as possible, as long as it’s enough to open an account, just start with that.
For example for Forex, I think you can open with as little as $200 or $300. Start with that amount. Don’t put in that full $50,000.
Because when you learn a new skill set, a new endeavour, be it cycling, motorbike, driving a car, trading, you’re going to suck badly the first time around. You’ll be at the worst when you just started. So don’t be a hero and go all in.
Well, if you’re going all in, then guess what? You’re going all out after that.
So don’t go all in. You’re just putting a small amount of capital to get your feet wet. And there are a few reasons for this:
Reason #1: You’ll be bad at trading in the beginning
Since you know you’re going to suck so bad at the start, even if you lose capital, the financial loss, the nominal value of the money, is not huge. It’s like few a hundred dollars or maybe even tens of dollars.
That’s something that you probably can deal with it.
Reason #2: You’ll make lots of mistakes in the beginning
You’ll make mistakes at the start of your trading career, your trading endeavour.
No one starts off perfect. No one starts off nailing their trading plan with a home run. And executing their trades consistently over the next 50, 100 trades for the first time.
You’re going to make mistakes. Mistaking the buy button as the sell button. If you panic, the sell button becomes buy button. You might key in the wrong position size and stuff like that. You’ll make mistakes. So these mistakes might cost you money.
Why do you want to pay so much of these “tuition fees”, when you can pay as little as possible by having a smaller account size at the start?
Reason #3: You’ll react differently when it comes to using your money
You probably haven’t realized this yet, but different people behave very differently to money or reaction to money is very different because it largely depends on the way we are brought up.
The more nonchalant you are about money, the less affected you are when your P&L goes up and down. But if you’re the type of personality, who is very agitated when money’s always on the line then you would have to take time to adapt to trading.
Let me share with you a story. In my poly days, I have a friend whom I owe 10 cents for some reason that I can’t remember. And this guy bugged me every single day for his 10 cents.
And being the mischievous person that I was, I just refused to give him back the 10 cents. He bugged me every single day. If this person were to get into trading, I don’t think he’ll do very well because he’s too affected by the money.
At the point of time, I was a person who wasn’t too affected by money. And that was my bad, my mistake on my part. I shouldn’t have played with his feelings.
But the story that I’m trying to bring across to you is that the way you behave towards money will have an impact when you’re trading live.
The more nonchalant you’re about money, the more you can accept the up and down of your trading account. The more affected you are by money, the harder it is for you to come to terms when your trading account goes up and down.
I have no idea which category you belong to, that’s why I suggest you start with a small trading account.
And finally, the last thing…
How much exactly should you put into your trading account
As a rough general guideline, let me just give you an example.
Let’s talk about Forex trading seems most of you want to learn more about Forex. So my suggestion is to, put in an amount of money such that even if you hit a loss on your trade, it’s not more than 2% of your trading account.
If you trade Euro US Dollar, your average trade size is 100 pips stop loss. Let’s say you trade one micro lot, right? So that’s about 10 cents a pip. With 100 pips stop losses at 10 cents a pip, if your stop loss is hit, it’s about $10.
So now you’ve to ask yourself, if you have a loss of $10, how do I make sure the $10 loss is not more than 2% of my trading account? We’ll just do some simple math and you realize that you need about a $500 trading account.
If you hit your stop loss, which is about $10, it’s not more than 2% of your trading account. You get the idea.
So now let’s say maybe most of your trades are not 100 pips stop loss. Maybe your stop losses are tighter at about 50 pips. If that’s the case, then you don’t need a $500 trading account. You can reduce it down to $250.
Because with the 50 pips stop loss and you’re trading 1 micro lot, each loss is about $5. If that is a loss to you and you want the $5 to be not more than 2% of your trading account, you realized that you need a minimum of $250 in your trading account.
This is just one simple technique to determine how much money to put into your trading account for starters.
Remember, you want to start as small as possible. Don’t go big, that’s not a very good idea. And hopefully, this helps.
I’ve come towards the end of today’s episode and I’ll talk to you soon.