In terms of other financial instruments, currency trading is probably the most accessible. To illustrate, you can open an account and start trading without spending any money. That’s possible through demo accounts where you don’t trade in the actual markets but in a ‘virtual’ market that copy the real one.
Most of the brokers will give you an initial deposit of $10,000 or more of virtual money so you can start practice. Of course, no winnings will be paid, or no funds will be taken from you if you lose.
However, If you want to trade in the real market, you should have at the very least $50 in your bank account or on your credit card.
In contrast, the Securities and Exchange Commission requires that day traders in the stock market need at least $25,000 in assets before they can participate.
There is no such requirement in the forex market.
When trading, the forex market offers three options for retail investors: the micro-lot, mini-lot, and standard lot.
These terms will be taken up when you take a forex trading course, which is crucial if you’re serious about trading.
- Micro-Lot — The micro-lot represents the smallest base currency in the market, equivalent to 1,000 units.
- Mini-Lot — The mini-lot is equivalent to 10,000 units.
- Standard Lot — The lot has a corresponding value of 100,000 units of the base currency. For example, when you say a mini-lot, traders take it to mean 1/10th of the standard lot. The micro-lot, meanwhile, is 1/100th of the standard.
How Much Will You Earn?
According to Salary.com, a forex trader in the United States earns between $140,000 and $211,000. Of course, I am assuming that you are employed in a hedge fund, bank, or financial institution.
But the number of jobs available is limited, so you won’t likely land one unless you are very talented. Most forex traders, however, do very well by working as their boss. They own their time, manage the risks, and earn all the rewards.
What Can I do With My $50?
The answer is not a lot. If you take a forex trading course, you will understand that the amount would not give you sufficient leverage.
A rule of thumb in forex trading advocates against risking more than 2% of your capital. So, if you are $50 initial capital, 2% translates to just a dollar.
When it comes to forex trading, the crucial metrics are the risk to reward and your win rate. The risk to reward is the potential returns you earn from every dollar that you risk. The win rate, meanwhile, is the number of times your risk yields a reward.
Going back to your $50 initial investment, earning two dollars every time you risk a dollar is not a sound strategy. Granting for the sake of an argument that you are a very talented trader and you earn 40% monthly profit, it still only translates to $20.
In forex trading, you should risk big to earn big.
You must also know that there are seven currency pairs in Forex: the EUR/USD, USD/JPY, GPB/USD, USD/AUD, USD/CAD, USD/CHF, NZD/USD. However, the market volume is staggering with a daily transaction amounting to nearly $6 trillion.
Your $50 is infinitesimal compared to that financial behemoth.
How Much Investment Should You Start Then?
Most people will tell you that $2,000 or $3,000 would be a good start if you want to make money from currency exchange. But $1,500 would already give you enough elbow room for your swing trades to yield returns without absorbing heavy losses.
Of course, it would be under the assumption that your long-term direction is good and your position sizes are sensible.
However, the question is not how much, the better route is to equip yourself with the fundamentals to hedge your risk. And that’s what forex trading courses are for.