How much money would I need to make it worth investing in Forex?
Obviously I have a lot to learn before I decide to open an account on Forex and start investing but how much money would I need to start with to be able to make any money and to make it even worth the time and effort investing and researchign? I’m a college student so if it’s more than a couple hundred bucks I’ll probably have to wait.
July 14th, 2010 at 4:45 am
Hi,
My opinion is that you must not think of how much you can make in Forex in absolute values, but rather in percentage points relative to your initial starting equity (ROE).
I believe that if you can make 30% per annum return it is a huge performance. Remeber the statistics that only 5% of the traders make money consistantly in trading (be it Forex, indexes, commodities, futures, etc).
Therefore if you have USD 1,000 starting equity and by the end of the year you’ll have grown that amount to USD 1,300 it is an outstanding performance. Of course, it might not be “so spectacular” because in absolute value it is only USD 300 but I tell you, when you trade with your cash you’ll see what I mean.
There is an entirely different story if you have USD 500,000 to start with and by the end of the year you’ll have USD 650,000. The amount is incomparable with the first mentioned amount but the return is also 30%.
I also believe that if you start trading you will find it very difficult due to the fact that there is a lot of personal psychology involved – you may get “angry at the market” when you lose as you don’t want to accept the fact that you were wrong. There is an entire range of emotions that you’ll have to control, or at least ackowledge them. I am referring to the famous fear and great.
Another important facts are that you must be extremly disciplined, you must have your own set of rules which you must obey and get in or out if your rules say so. You must try to eliminate emotions from your trading and not get involved in a trade. Know why you got in a trade and have a plan to follow through a trade.
Another thing is that you may want to always hold a position, so that you can feel that you “are in the market” and feed your need or urge to trade. This is dangerous and can affect your equity seriously as the markets are mostly range bound.
The thing with Forex is that all brokers offer up to 400:1 leverage. If you use that amount and make a couple of trades that go wrong and stick with them as you don’t want to admit that you were wrong, you can get wiped out very quickly. You must use strict money management techniques as you want to be able to trade another day. You must be in the market for the long run and not gamble with your equity.
I also find difficult the 24-hours market characteristic of Forex as you can lose some gained profits overnight, if you don’t lose take profit targets or trailing stops (as you hope that you will earn more than you already did) and may get frustrated when you wake up only to see that not only you are not in positive teritory but rather at a loss.
Another danger is that you are undercapitalized is to believe that you can turn that amount into a fortune over night – there are plenty of “black boxes systems”, “market gurus”, “automated signals” that appeal to your gread and desire to get very rich very quicly and then much richer again. You should not fall prey to that and educate yourself.
To wrap up, I can say that yes, you can make money in Forex, but it is not by any means an easy task and you should arm yourself with your tools needed to survive the markets: discipline, money management, following your own rules, not over-leveraging, setting realistic goals, not to get addicted with the markets and block everything else besides them, enjoy the journey you embarked on and know your goals.
I hoped that my personal opinions helped to some degree and I wish to you the best of luck.
July 14th, 2010 at 5:15 am
Hi,
A very important aspect of this question is the leverage in forex.
I strongly suggest you look into this issue and select your leverage ratio. There is a very good article for you to read about lleverage at:
http://www.forex-signals-4u.com/education.html
Your second choice is how to select a forex broker that can accomodate your selected leverage. At the same above location there is an article about how to select Forex companies.
Hope the above helped.
July 14th, 2010 at 5:47 am
Invest only what you can afford to lose. Most trading platforms offer mini accounts where you can start trading with minimum of $50 to $250. Trade only with leverage of 1:1 (only invested money) and never go beyond 10:1.
July 14th, 2010 at 5:47 am
Although you can open a mini forex trading account for less than $500, you really need about $2,500 to make meaningful profit. Also, try not to leverage too much 2:1 or 3:1. Most traders who get wiped out generally had very high leverage, 50:1, 100:1, etc