• Posh English Trader

Forex Trading With $100

Updated: Apr 18, 2019

So, if you have $100, can you trade with it?

The short answer is yes. There are online brokers that will allow you to deposit a minimum of $100 and begin trading.

However, the larger question is should you?

So, the common rule of thumb is that you should be risking no more than 1% of your account on any one trade. This means that if you deposit $100 then your maximum risk should be $1. Sounds simple enough, but you need to dig a little deeper.

First of all, currency pairs move in pips. For example the eur/usd may be priced at 1.3000. The fourth decimal place represents 1 pip and so, if the eur/usd moves up to 1.3001 then that is an increase of 1 pip. When you place a trade with your broker, you will have to select an amount of money per pip of movement that you want to trade with. So if you select the amount as $1 per pip and the eur/usd moves 10 pips, you will either make or lose $10 - suddenly you have potentially lost 10% instead of 1%!

Some brokers now allow you to place very low amounts per pip, known as nano accounts, meaning that is is possible to place trades with a value of $0.10 per pip.

However, with that small value per pip, or what we call lot size, you can still only set your maximum loss (stop loss) to 10 pips to be able to risk 1% of your $100. On the daily time-frame, where the major currencies move anywhere from 50-200 pips, on average, on a daily basis, this is no good - you're stop loss will simply be hit by volatility in the major pairs before you have any hope of making money.

So, what you could do is look at the smaller time-frames - anywhere from 1 hour down to 1 minute. However, you should be aware that, the smaller the time-frame you trade on, the more time you will need to spend in front of your laptop. Therefore, you will be more susceptible to trading psychology, because your spending so long looking at the markets. Lastly, the smaller the time-frame, the more you will come up against automated trading robots that process thousands of transactions per second, much quicker than any human can trade. All in all, this is a realm for professional traders, and definitely not for beginners!

So as a beginner trader you should be starting with the higher time-frames - i.e weekly, daily and 4 hourly. However, as we have already discussed, you cannot risk only 1% with the minimum lot size of $0.10 per pip. We have, however, discovered that some brokers will offer you as lower lot sizes as $0.01 per pip, in which case you could trade the daily and 4 hourly time-frames only risking 1% of your account. You should be aware though, that in order to trade properly with a strategy which bases it's profit potential on a trend - the most advised way to trade! - you are likely going to have to set your stop loss between 150 and 200 pips away from your entry price - again to avoid being taken out by pure volatility and to give your trade a chance to mature.

Now, we're not saying you shouldn't do this and, actually 1.5-2% of your account is still a manageable risk - don't forget though, as you lose, which you will when you start, the more your capital decreases and the less you will be able to risk - do not get sucked into risking more to make money back you have lost by your own psychology! This is a sure fire way to lose all of your money!

This can be a good way to start, because you can get a feel for trading with real money, and get exposure to market psychology, that a demo account won't offer you. If you do decide to do this, we would advise the following:

1. Invest in you knowledge - take time to learn how the markets work and add a strategy to your toolbox to give you the best start.

2. Use it for practice - with such small lot sizes you are only going to be earning very small amounts - you cannot hope to trade full time, and become financially free with a lot size of $0.01.

3. Maintain discipline - don't let the small amount of money you are making let you deviate from your strategy and/or, even worse, let you risk more than between 1% and 2%! This is hugely important! The majority of ways to Trade Forex are leveraged, meaning that you can lose far more than your initial deposit if you don't use proper risk management!

4. Focus on pips not profit - Ensure your focus is on how many pips you are making, and not about how much money you are making. As you gradually build up your capital, by depositing an amount each month, and from the compounding factor of your earnings you will soon have enough capital to allocate higher lot sizes.

Together with the fact that you have a strategy that earns you a consistent amount of pips each week/month you will be able to finally give up that day job!

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