Trading Forex with a small amount of capital is the most alluring option for most aspiring traders. The concept of entering the global currency markets without requiring a huge amount of money is really attractive. Of course, trading with minimal capital does pose many problems, but with the right strategy and tools, it is still possible to become successful in Fx trading. Trading with minimal capital requires risk management, proper exploitation of opportunities, and constant skill improvement.
This is one of the greatest advantages that can be derived from FX trading since it is possible to trade using relatively small amounts of capital, as leverage allows for control of much larger positions than the initial investment. For example, with leverage, you could control $10,000 worth of currency with just $200 in your account. This means you will be able to make more substantial profits with little capital. Though, it’s worth noting that leverage amplifies both profits and losses. One should use very minimal capital with maximum caution and also not risk all on one particular trade.
Also, when one is trading with minimal capital in Forex, using a smaller position size is important. Position size in FX trading is the number of currency units you buy or sell in a trade. The smaller the position size, the less risk you take on each trade. For example, if you trade a mini lot, such as 10,000 units of a given currency, against a standard lot, which carries 100,000 units of the same given currency, your exposure is accordingly reduced while actively participating in a market. Now, you’re trading with limited capital and don’t take big risks on one trade.
Effective risk management is another crucial aspect when trading with minimal capital. When trading with a small account it is important, not to trade too much value of your accounts on one trade. Typically, a successful trader will risk no more than 1% or 2% of his complete capital on the trade. The implication is that if the trading account worth $500 needs to only expose its $5 per trade to that of $10. The utilization of stop losses and realistic targets put a limitation on potential losses while allowing room for very limited capital to successfully trade.
Trading with the lowest cost should also be incorporated in minimal capital. Some brokers may provide better spreads while others will incur more commission costs that will significantly detract from one’s profit due to small quantity trading. When selecting a broker, pay attention to his fees and check for one offering competitive spreads without hidden charges. Some brokers offer micro or mini accounts, which give you the chance to trade at even smaller position sizes that reduce your costs of trading even further.
The business of Forex is difficult with small capital, but the good use of leverage along with effective management of risk can take one forward to the achievable targets. An amount of even a low capital can grow over time in a disciplined way and, hence, one can enter the challenging world of FX trading.
