Home Forex Strategy Starting a trade in the forex market – ForexLive

Starting a trade in the forex market – ForexLive

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The basics of opening a trade


There are some forex brokers that let traders start trading with as low as
$1. But still, traders need to deposit at least $12 with a broker offering nano
lots of $120 with a broker offering micro lots to day trade safely. The amount
of money needed to start will always depend on the chosen broker’s:

  • Minimum Deposit
  • Minimum Trade Position Size
  • Maximum Leverage

and traders’:

  • Risk Management Strategy
  • Trading Style/Average Stop Loss Needed
  • Overall Financial Situation

To trade in forex
successfully, traders need a forex broker. Trading forex through a regular bank
account of a money changer is quite expensive and slow to be a realistic
option. 

Also, forex brokers
won’t allow traders to trade with real money unless they have deposited the
required minimum deposit. And these days, it is typically at $100 to $250. But
there are forex brokers with no minimum position sizes and maximum leverage.
Still, if they trade forex with such a small amount of money, they will surely
run into some problems – starting with minimum positions and maximum leverages.

Minimum Position Size
and Maximum Leverage

Most forex brokers
will not allow traders to trade size smaller than one micro lot (0.01 lots) –
worth 1,000 units of the base currency. For instance, one micro lot of the
USD/JPY currency pair is worth $1,000; traders will need leverage to make any
trade in the USD/JPY currency pair with a deposit of under $1,000. If a broker
offers maximum leverage of 30 to 1 on this currency pair – typical in the
European Union -, they need to deposit at least $33.34 to make one trade4 in
USD/JPY. Then, if the maximum leverage is 50 to 1 – typical in the United States -, they must deposit
at least $20 to make a trade in USD/JPY. For maximum leverage of 500 to 1
-typical in Australia -, they need to deposit at least $2 to make a trade in
USD/JPY.

Even though they offer
a lot of leverage, it does not mean that it is wise to use it. The minimum
amount of money traders need to make a single forex trade can be determined by:

  • The forex broker’s offered maximum leverage in what
    traders want to trade – leverage differs from asset and country to
    country.
  • The minimum position size traders can trade with the
    broker in what they want to trade – often one micro lot.

Some forex brokers let
traders trade in a minimum position size even lower than one micro lot. The
said lower size is one nano lot, which is equal to 0.001 lots. Using the
example used above (placing a trade in the USD/JPY currency pair), a single
nano lot would be equivalent to position size in cash of $100. Thus, with a
leverage of 100 to 1, the deposit of $1 would be enough margin to open the
trade.

The Amount of Money to
Position Trade Forex

Position traders seek trades that take a
few days, weeks, or months to finish. With that, it often needs to use stop
losses of about 100 to 150 pips. Let’s say traders don’t want to risk over 0.5%
of their account on any trade, and that they would never lose around 20% of
their account, they must start with a deposit of at least $2,500 to $3,750 at a
forex broker offering to trade in micro lots or at least $250 to $375 at a
forex broker offering nano lots.

For bank trade ideas, check out eFX Plus

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