In Forex trading, your FX capital is simply the money you use to trade.
So, if you have £5,000 ready to trade, you have £5,000 in capital.
In this guide, we’ll take a look at:
And we’ll show you how you can get started trading forex without risking any capital.
The first thing to bear in mind is that forex trading carries risk. You can – and will – suffer some losing trades, even if your overall strategy is profitable.
If that idea makes you uncomfortable, you shouldn’t be trading. If you decide to accept the risks, and proceed, you should still never trade with money you can’t afford to lose.
That might sound harsh, but the forex markets aren’t a game. Traders take risks with money, and it’s important you understand that.
So, what’s the right amount of capital to start with in forex trading?
The best way to answer this is to focus not on a specific amount, but a percentage of your net worth.
The British Financial Conduct Authority recommends that you never have more than 10% of your net worth in high-risk trades.
So, if your total net worth is £10,000, you don’t want to have anymore than £1,000 tied up in high-risk trades.
If you have £100,000 net worth, then you’d have £10,000 to trade.
This is a guideline, not a law. In the end, how much FX capital you choose to trade with is your decision.
You’ll have your own financial goals, and your own appetite for risk.
Yes, it’s possible to start trading forex with $100 as your starting capital. Though naturally, the trades you can place will be limited in size.
There are two key things to bear in mind if you’re going to trade with a smaller amount of capital:
1. Be realistic in your expectations. Starting with $100 in capital means you need to be disciplined in your approach. Focus on building smaller positions, accept wins and losses while trying to remain profitable. Over time, you can build up your capital.
2. Be sure to understand leverage. If you’re starting with less capital, the chances are you’ll be using leverage in some capacity to place forex trades. It’s important you take the time to understand the risks that come with leverage.
This comes down to your goals and your capacity for risk.
It probably goes without saying that the more capital you have to trade, the larger trades you can make and the more profit you can potentially target.
And, of course, the larger the trades the more you can lose if the markets turn against you.
Even the best traders suffer losses, and learning to manage losses psychologically is a key skill for all traders.
Forex is a financial market, just like the stock market. It’s not actually a company.
It is the largest and most liquid trading market in the world, with trillions being traded each day.
In the forex market, traders speculate on whether currencies will rise or fall in value against each other.
All forex trades are made in pairs, with one currency (the base currency) being valued against another (the quote currency).
Example pairs are displayed in this way:
The first number within the bracket is the ‘base’ currency, and the second is the ‘quote’ currency.
So, if you wanted to trade the Euro/US Dollar pair, you would be trading the value of the Euro against the value of the US Dollar.
If the Euro increased in value against the dollar, you’d profit. If it decreased in value against the US Dollar, you would lose money.
(Unless you’d placed a ‘short’ trade. This means that you’re speculating the ‘base’ currency will go down in price.)
It depends on a number of factors, including:
And, overall, how much time and effort you’re prepared to put in to get better. Forex trading is no different to any other skillset. The more time and effort you put in, the faster your skills will progress.
(One way to do that is to sign up for a markets.com account proceed with the free demo account, where you can practise making FX trades without risking real capital.)
If you plan to start trading forex, and you want to practise making trades before you do it for real, sign up for markets.com’s trading account today.
As part of your sign-up, we’ll give you access to a full risk-free demo account with fake funds, so you can practise making trades and getting comfortable reading the markets before you trade for real.
“An investment in knowledge pays the best interest.” Benjamin Franklin
Click the link below, and we’ll take you right through to the sign-up page.
Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.
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