Capitalization

It takes money to make money. Everyone knows that, but how much does one need to get started in trading? The answer largely depends on how you are going to approach your new start-up business.

First, consider how you are going to be educated. There are many different approaches in learning how to trade: classes, mentors, on your own, or any combination of the three.

While there are many classes and mentors out there willing to teach forex trading, most will charge a fee. The benefit of this route is that a well-taught class or great mentor can significantly shorten your learning curve and get you on your way to profitability in a much shorter amount of time compared to doing everything yourself.

The downside is the upfront cost for these programs, which can range from a few hundred to a few thousand dollars, depending on which program you go with. For many of those new to trading, the resources (cash money) required to purchase these programs are not available.

For those of you unable or unwilling to pony up the cash for education, the good news is that most of the information you need to get started can be found for FREE on the internet through forums, brokers, articles and websites like BabyPips.com. We should all thank Al Gore for inventing the Internet. Without him, there would be no BabyPips.com.

As long as you are disciplined and laser-focused on learning the markets, your chances of success increase exponentially. You have to be a gung ho student. If not, you'll end up in the poor house.

Second, is your approach to the markets going to require special tools such as news feeds or charting software? As a technical trader, most of the charting packages that come with your broker's trading platform are sufficient (and some are actually quite good).

For those who need special indicators or better functionality, higher-end charting software can start at around $100 per month.

Maybe you're a fundamental trader and you need the news the millisecond it is released, or even before it happens (wouldn't that be nice!).

Well, instantaneous and accurate news feeds run from a few hundred to a few thousand dollars per month. Again, you can get a complimentary news feed from your broker, but for some, that extra second or two can be the difference between a profitable or unprofitable trade.

Finally, you need money/capital/funds to trade. Retail brokers offer minimum account deposits as low as $25, but that doesn't mean you should enter immediately! This is a capitalization mistake, which often leads to failure. Losses are part of the game, and you need to have enough capital to weather these losses.

So how much capital do you need? Let's be honest here, if you're consistent and you practice proper money management techniques, then you can probably start off with $50k to $100k in trading capital.

It's common knowledge that most businesses fail due to undercapitalization, which is especially true in the forex trading business.

So if you are unable to start with a large amount that you can afford to lose, be patient, save up and learn to trade the right way until you are financially ready.

1. What is Risk Management?
2. Capitalization
3. Drawdown and Maximum Drawdown
4. Don't Lose Your Shirt
5. Reward-to-Risk Ratio
6. Summary: Risk Management

Forex Training in the School of Pipsology