I am trading micro lots right now just to get the taste of FOREX trading. I am obviously new at this but was curious what amount of capital is needed to trade mini’s and standard lots?
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it depends on your trading parameters and techniques, so there isn’t a single, easy, factual answer
as a general rule, for the first year you should never risk more than 1% of your account on any individual trade, so you need to work out the answer according to how big your stop-losses are
if the trade reverses on you, the minute you enter it, and promptly hits your stop loss, you don’t want that losing more than 1% of your funds
an example - say you’re trading EUR/USD, which represents $10 per pip for a single lot, and you’re using a 20-pip stop loss
that means a losing trade costs you $200, and for that to be 1% of your account, you’d therefore need $20,000 in the account to trade a lot
and you’d therefore need only $2,000 in the account to trade a mini-lot
note: those are just the figures for a 20-pip stop loss, so if you’re using a 40-pip stop-loss you’d need to double the numbers and have $40,000 to trade a full lot and $4,000 for a mini-lot, while if you were using a 10-pip stop-loss you might get away with only $10,000 for a full lot and $1,000 for a mini-lot
but that’s just my answer and my example - what matters to your own prospects is your answer!
that’s how to work it out, anyway
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Welcome to the forum, @Damo742!
Technically speaking, the amount of money you need to open forex trade can be quite low. For example, with FOREX.com you can open an account with $50 (with smaller brokers you can start with even less). That would give you enough money, to trade one micro lot (1000 units of base currency risking about 10 cents per pip) using approximately 20 to 1 effective leverage (because your your $50 would be controlling a position about 20 times larger in size).
If you want to maintain the same effective leverage, but trade a position size 10 times larger, then you would need to have 10 times as much money in your account.
For example, with $500 in your account, you could trade one mini lot (10,000 units of base currency risking about $1 per pip). Again that would be approximately 20:1 effective leverage (because your your $500 would be controlling a position about 20 times larger in size).
With $5,000 in your account, you could trade one standard lot (100,000 units of base currency risking about $10 per pip). Again that would be approximately 20:1 effective leverage (because your your $5,000 would be controlling a position about 20 times larger in size).
You have probably already heard that you can trade one mini lot with less than $500, or trade one standard lot with less than $5,000 and that is true. In Europe, regulations allow brokers to offer clients up to 30:1 leverage to trade forex. US regulators allow brokers to offer clients up to 50:1 leverage.
(In other jurisdictions, you may see higher levels of leverage allowed, and of course, unregulated brokers can offer as much leverage to clients as they want, and often go to extremes to attract more business. At that point, you have to consider the danger of brokers that offer excessive leverage.)
Instead of asking how much money is needed to trade mini and standard lots, it’s better to consider how much money you should have to achieve your goal of effective leverage. That’s because leverage magnifies both your gains and your losses.
Beginner traders tend to think only about how much money they can make and don’t pay enough attention to how much they could lose. You may find this article helpful in understanding the rationale behind risking only 1% of your account balance per trade: http://www.newtraderu.com/2016/07/19/important-math-trading/
It would be very hard to limit your risk to 1% of your account balance if you are using more than 10:1 effective leverage. That’s why studies have shown that traders who use 10 to 1 leverage or less tend to perform better than traders who use more than 10:1 leverage.
Regardless of the maximum leverage available where you live or through your specific broker, you can choose to use 10:1 effective leverage, which would equate to $1000 in your account for every mini lot you trade, or $10,000 in your account for every standard lot you trade.
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This is fantastic information and even more than I asked for. Thank you and I will read that article right now.
Damo
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Great stuff, thank you so much. I have so much to learn.
Damo
Pretty good post here! thanks. 1% per traded pair and maybe a mix of 2-3 percent of your account at risk with multiple trades.
Another item you may want to get in the habit of tracking with your winners in a row and losers in a row and their respective averages. This will help you establish a positive edge.
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