To know how much a safe investment in forex trading is, you must first understand why the amount you put in is crucial. Many perceive that forex trading is a low-risk and high-reward venture. But this isn’t always the case. It’s also why plenty of newcomers are often under-capitalized.
Will the Amount of My Capital Matter?
Yes, it does matter whether you start with $100 or $5000, especially if you want to get a steady income stream from trading. This can be hard if you’re willing to invest a small amount.
The rule of thumb in trading is you should only risk 1% of your balance. If you have $100, just put in $1 on trade. With a good strategy, you can earn a couple of dollars a day.
While the money you make from forex trading can accumulate over time, many will find the growth very slow. Because of this, people are often pressured into risking more money to gain more. You’ll have to factor in the fees and commissions you’d have to pay.
Apart from these reasons, your capital should also depend on your approach to forex trading. Do you want to day trade, swing trade, or invest for the long term? Read on to find out more about each one.
Day Trading
Day trading usually refers to buying and selling assets within a single day. This is done in different marketplaces, but it’s most common in forex and stock markets. Day traders are typically skilled and well-educated since they need to make the right decisions to capitalize on small price movements in highly volatile currencies. It’s recommended to start with at least $3000 – $5000 if you want to day trade.
Swing Trading
Just like day trading, swing trading is another form of active trading. The goal this time is to make a profit from a trade that takes a few days or even months. It’s done by identifying where a currency’s price is likely to move next, then entering a position, and capturing a chunk of the profit if the movement materializes. Consider starting out with $500 for this strategy.
Long Term Trading
Long-term trading is often referred to as position trading since it’s a trading style where you’ll hold on to a position for an extended amount of time. This can last anywhere from a few weeks to years. People who use this method treat their assets as investments with a larger story. They’re not easily swayed by short-term volatility.
If you don’t have significant capital to invest, you’re better off just saving up for a while before you commit. This way, you’ll have enough money, giving you more flexibility in whatever strategy you wish to follow. Take this a step further by studying how to better manage the assets in your account so you can avoid losing what you’ve gained.
Start Trading Today
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