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Posted on Apr 30, 2020 at 07:05 PM
Our featured question for the month of April came from Oyindamola, and she asked, “Can I start trading Forex with just $50?” While the part 1 of this article had started the conversation, this part seeks to finish off the conversation so that you can get started on the right foot!
In our first edition of this series, we ended by asking this, “if a Forex broker offers a way to start for $50 or less, should you take it?”
My response was, “that depends on several factors, but if it were up to me, the answer would always be “YES!”.
You see, your job as a Forex trader is to stack the odds in your favor. You should always do this when evaluating trade setups, but it’s just as important, if not more so, when deciding the starting size of your account.
I promised to talk about the other several factors in making Forex money decisions, so let’s dig in right away with some hashtags. Let’s take the first hashtag.
#1. MONEY AND EMOTIONS
Money is a powerful thing. Lose too much of it while trading and you may be put off by the notion of risking money in the financial markets altogether.
But there is another side to money and emotions that plagues we traders, and that is a feeling of accomplishment and satisfaction.
Let’s assume for a moment that you move forward with your plan to start trading Forex with $50. You make the deposit and 24 hours later the account is ready to go.
At this point, you’re feeling on top of the world. After spending ample time with a demo account (I hope), you’re now ready to start making the big bucks!
On the very first day of your newly funded account, the GBP/USD (actually, it’s my favourite pair) forms a bullish inside bar at a major Resistance zone. It has all the markings of an “A+” trade setup.
Without hesitation, you open your account and place a SELL Order, risking 20 pips of your account balance which is $2 on InstaForex when trading 0.1 mini lot-size (which is what I recommend for a $50 equity).
After four trading days, the pair has hit your major support with a profit target of 100 pips, which equals 20% of your account. Excited to see your freshly minted money, you open your account on MT4 and there it is…
A profit of $10.
Now, in a perfect world, you would relish the idea that you just pulled out a 20% profit in just four trading days.
Notice I wrote 20% and not $10.
Remember, everything is relative in Lot-sizes, so any trading performance should be measured by percentages and ratios rather than dollar amounts or pips.
But here’s the thing…
Just like everyone else, you are human. This means the excitement from your first real profit will fade when you realize it’s only $10. Not only that, but it took four trading days or almost 100 hours to do it.
That alone can lead to overtrading and overleveraging the account because that $10 isn’t going to keep you satisfied for long. You want more, don’t you? I bet you do.
Now this leads us to the second hashtag.
#2. Sacred money is not an option.
The reason I’m confident about telling someone to begin trading Live with $50 has to do with financial security.
Remember Oyindamola in Part 1 of this series, I obviously don’t know her situation or anyone who asks this question. But when someone hints at the idea of starting with some very affordable bucks, I get very confident & supportive for them.
Whatever amount you deposit into a Forex trading account should be 100% disposable & affordable. This means you can afford to lose the entire amount without it affecting your day-to-day life. You can still pay all your bills, provide for your family, recharge your phone, fuel your generator, etc.
So if you tell me that you only have $50 of disposable funds, that makes me comfortable. It tells me that your financial situation might not be as superb as it should be, but you are confident about being able to support the risks involved with trading.
Yes, I know that I could be completely wrong. For all I know, the person asking this question could have N100,000,000 in the bank and zero debt.
But my close-to-10 years of Forex Trading experience tells me otherwise.
My point here is that you should only consider trading Forex – or any market for that matter – once you can afford to lose money without slowing down your life.
If you can’t, then my recommendation is to work on getting your finances in order first, focus on acquiring adequate Forex knowledge plus Technical know-how, and then save up for a Live trading account because the Markets will always be there when you’re ready. We’ll get to how much you might need for that in the next episode.
So if you want to win at trading, you can’t be afraid to lose it.
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