How Much Money to Start Forex Trading in South Africa?
For various reasons, more and more people in the world want to participate in Forex trading. There is a consensus among potential traders that Forex is a profitable business. Controversial views, on the other hand, exist on the question of how big the starting capital for trading should be.
In this article, we will figure out exactly how much your first deposit should ideally be based on your goal and share some helpful tips and tricks.
How Do I Start Forex Trade?
First, we need to talk a little bit about how you actually start trading since it somewhat influences your initial capital. To directly enter the market, get quotes, and start trading you will need to:
- Find a broker;
- Register with it;
- Open an account;
- Make a deposit;
- Download the trading terminal;
- Choose an asset, analyze it, open a position, and make a profit.
Of course, the choice of a broker is a subjective matter. The most popular options in South Africa seem to include brokstock.co.za, Tickmill, and CMTrading, but you should do your own research and choose the platform that suits you best. Also, there is much to be said about how to start investing successfully, from choosing a strategy to making a first trade, but these are not the topics of this particular article.
How Much Money Do You Need to Start Forex Trading?
At this point, it is important to clear up a misconception, the essence of which is that the lower the amount of the minimum deposit, the better. Many people search through the Internet for a broker that offers to begin with $10 or $5, or even with $1, and are very glad when they find it.
Remember, the more money in your first deposit – the less risk. So anyone who takes their first steps in the financial markets, should not start with $5.
Minimum Capital for Day Trading Forex
Would you like to earn at least $3,000 per month with Forex trading? Some people turn to swing trading for such profit, but there it is only possible through disproportionately high stakes. So you have to find another strategy. Day trading is an alternative, which impresses with efficiency and allows smaller stakes.
A day trader follows the overriding trend and also takes smaller corrections as opportunities to make a profit. Depending on the market situation and currency pair, you can earn 50 pips or more per day. You rarely need to open and close more than 5 positions per session to do this.
To reach the above-mentioned $3,000 per month, each trading day must bring $200 gross. The achievable 50 pips require lower stakes in day trading than in swing trading. The stop loss should be set at 5 to 10 pips maximum. Therefore, higher leverage can be chosen, which makes the stake cheaper for each position.
Now, let’s look at a short example. You invest in half a lot at a leverage of 1:200, only $250 plus fees, so a total of $300. Half a lot brings you 5 euros per positive point and you are at your daily target after 40 pips.
For psychological reasons, a trading account with at least $500 is recommended, even better if you have $1,000. With this, unlucky trades do not become a problem and you can continue. With $1,000 in the trading account, even positions with one lot are possible with leverage of 1:200. The loss limit at 5 pips reduces possible losses to a maximum of $50. 50 positive pips result in a return of $500 per day, equal to $10,000 per month.
Potential to Make a Profit
Even though traders can open an account with an online broker with as little as 1 euro, trading with low capital makes little sense. Rather, the question should be asked – what goals do you want to achieve through trading?
When professional traders asked how much capital is enough for Forex trading, $500 is the most common answer. The reasoning is simple – this is the minimum amount for proper risk management and provides a potential for making profits. Also, it should not be forgotten that traders invest a lot of time, and speculating on rising and falling prices with a few cents is no fun.
To gain experience, it is possible to start with less money. Once the familiarization phase is over, you should once again ask yourself what your primary goal is with Forex trading. Ultimately, it is about generating nice profits and this is only possible with more capital.
Understand the Risks
You now know your options and how much money should be in the trading account. You can use a demo account (most brokers have one) to figure out how comfortable will you be with a chosen amount and experience the risks that traders encounter every day.
The most efficient way of Forex trading is scalping, but it must be learned thoroughly otherwise you will be risking a lot of money very quickly. Significantly less risk is in swing trading. However, this strategy is far less effective and requires a high capital investment.
As mentioned before, day trading is considered to be a middle-ground between the two. It also has potential risks you have to learn and constantly be aware of.
The Best Minimum Deposit to Start Forex Trading
We recommend starting with at least $500 or up to $1000 if you want to lower the risks and give yourself “more room to breathe”. Although you can open a Forex account with as little as $5, such minimal amounts are not worth the effort. To begin trading, it is very good to use minimal amounts. However, if you are serious about spending several hours a day on the markets, it will be worthwhile to start with more capital.
The question about the size of the trading account in Forex trading cannot be adequately answered in a few sentences. The answer depends on your demands, views, and goals.
Of course, Forex trading can be done as a side job, but this requires more money in the trading account and results in comparatively low returns. Commitment to trading can help you to get more out of each session with less effort.
Serfontein Petrus Johannes
Peet holds a BCom (Hons) Investment Management from the University of Johannesburg.
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