One of the most frequently asked questions among forex newbies is: How much money should I put in my trading account?
The short of it is that, you should only trade money that you can afford to lose.
However, there are also risks to being undercapitalized, so it does not make much sense to open an account with just a few measly bucks.
You see, once you step into live forex trading, the way you look at capitalization will never be the same. Forex trading is now a business – YOUR business.
One key business principle you need to understand is that it takes money to make money.Being properly funded will allow you to sweat out periods of bad business (poor trading), and give you a higher chance of surviving long enough so that you may experience periods of good business (good trading).
To give you an idea on how much you should put in, here are some important questions that you need to ask yourself:
- Will you be trading full-time or part-time?
- Do you plan on making a living out of forex trading?
- Will you be supporting your family through trading or just yourself?
- How are you going to be educated?
- How much can you spend on trading tools such as charts and news feeds?
- What is the maximum amount you can you afford to lose per month or per year?
- Do you make money from being more right than wrong?
- What is your average variability of returns on a per week or per month basis?
- Will you be trading different strategies or systems to diversify?
- Do you plan on building up your capital with additional funds regularly?
After answering questions like these, then you can estimate how much you need to start with.Once you’ve decided on your initial capital and have begun your forex trading business, only then can you start growing it.
But of course, like any other business, you should only expand when you are already making money and successful. You don’t build a second McDonalds if your first one is still struggling to rake in profits!
These are all basic management principles, but they will be essential to setting the foundation of your trading career and business.
So make sure you have both a solid trading plan and a business plan in place before you decide to get your feet wet and go live.