Wouldn't
it be
nice if building a successful business were that easy.
Unfortunately, you and I know that life
simply doesn't work that
way. It takes time,
effort
and focus
to build a successful
business, be it a currency trading business or any other business for
that matter. It also takes a
certain amount of capital to
build a
successful business.
The Three
Main Reasons Why You
Need Capital to Build a Forex Trading Business
1. Trading Capital
The most
obvious monetary
requirement comes from the fact that you need to seed your account with a certain
amount of Capital to trade
with. The old adage, "It takes
money
to make money" is partially true here. You cannot trade
currencies without having at least
some money of your own to begin with. Fortunately, the
ability to use "leverage", explained below, means that the actual
amount of money that you will require is far less than in most other
businesses.
Some folks
and
services will tell you that you can open Forex trading accounts for as
little as $1 to $50. Does this mean that you can begin
trading
currencies with such a small amount? The technical answer is
yes,
you can fund an account with say, $25 and begin trading. The
practical answer, however, is that the
probability of you losing all of your money before you can build is
practically 100%. As such, there is a certain minimum
amount of Forex
funds that you must have to invest before you can comfortably trade
Forex.
How much
money will
you need? We will look at this in detail below in our
discussion
of leverage, but our recommendation
here is to forego starting your
official Forex trading business until you have at least $2,500 in Forex
funds.
2. Forex Education
As we explain
on this website,
you have a lot to learn before you can successfully trade
currencies. There is a pretty significant learning curve to
overcome. There are two ways to do this and both will cost
you
money.
First, you
can do
what "appears" to be the more cost efficient solution. You
can
attempt to learn how to trade currencies from cheap or free resources
on the
Internet. Yes, there are all sorts of free information on
numerous websites that you can use to learn from. Pick up a
book
on currency trading and you have what it takes to trade the Forex,
right? You can then begin trading on your own without the
help of
a mentor or trading room service. Eventually, with
experience,
you might begin to develop your skills and trade
consistently.
This will take time, however. In the process, I guarantee you that you
will lose a lot of
money trading currencies as
you discover what works and what
does not work.
The better
way is
for you to engage in a process of intense
education from the get
go. This will involve registering
with competent Forex school
and working through their program of study as an initial
step.
You will then need to engage the services of a reputable Forex Mentor
or trading room
service. This will ensure that you are applying all of the
tools
and techniques which you have learned efficiently. It will
also
ensure that you are up to speed trading currencies in record
time. In doing this, you will save thousands of dollars that
would most likely have been lost trading.
How much
money is
required? Well, you can expect to pay anything from $200 to
$1000
for a good trading education to begin with. It all depends on
the
school you choose. Often times, schools have promotional
offers
that can represent a very good savings to new Forex traders.
3. Tools and Services
Depending on
how you will
trade currencies, you will need various tools and services.
At a
very minimum, you will need have a brokerage
account and a good charting
service. Your
brokerage service will charge you money
based upon the number of trades you make. With each
trade
you make, your broker will charge you an amount of money equal to the
spread between the bid and ask price of the currency pair.
Charting
services
range from free introductory services to extremely expensive premium
charting services. For the most part, the free services
provide
most, if not all, of the necessary analysis tools that you will need to
trade forex consistently. Many traders, however, opt to use
some
of the more premium services available on the market today.
Expect to pay
anywhere from $20 to $250 per month
for these premium charting services.
Other
services that
you may want to consider:
1. Mentorship programs
which can run you from $50-$400 per month (Absolutely essential)
2. Premium news services
which cost $30-$100 per month.
3. Forex Simulator
which
cost approximately $200 one time fee
4. Forex Signal services
which cost anywhere from zero to $300 per month.
So you can
see that
aside from your seed capital, you should have anywhere from $500 to
$1500 to invest in your education at the inception and another $50-400
per month thereafter to pay for mentorship and services.
How Much
Money do I Need to
Trade Forex? The Power of Leverage
The above
sets the stage for
our analysis of exactly how much money you need before you can hope to
trade Forex successfully. There is one final concept which
you
need to understand first. This is the concept of
Leverage.
In the absence of leverage, if you have, say, $2,000 in your trading
account, you would only be able to purchase $2,000 worth of any
currency in the marketplace. It would be hard to make lots of
money with only such a small amount of money in the market. Fortunately, Forex brokers
allow you to
trade with their money.
They will extend margin to you to
allow you to trade currencies. In the equities market,
brokers
allow this also, but their leverage is usually 2:1. This
means
that they will allow you to trade $4000 worth of stock with a balance
of $2,000 in your account.
In the Forex
industry, brokers
will give you as much as 500:1
leverage. This
means that you can purchase $1,000,000
worth of currency with a mere $2,000 in your trading account.
What this means as a practical matter is that even a small change in
the price of a currency can produce a very large change in your
profits. Therefore, you can make (and lose) large amounts of
money with only a small balance in your trading account.
Pretty
neat, isn't it.
Ok, now, lets
discuss how much money you need to start. To begin, lets
consider
your initial one-time costs for purchasing courseware, Forex
simulators, etc a sunk cost. What
we want to do instead is determine what your monthly variable costs
will be.
For purposes
of
illustration, lets say you incur the following monthly variable costs
Mentorship $50.00
Charting
$25.00
News
$ 0.00
Total:
$75.00 per month
Now, in order
to be
profitable, you must be able to cover your monthly expenses and then
some every month. So you must earn
at least $75.00 per month to
break even.
Now, if we
assume
we can generate a return of 2.5% per month, then that return must
amount to at least $75 per month. This would mean you need to
start off with an account of $3,000.00. ($75 is 2.5% of
$3,000).
If you spend
more
on mentorship, charting, news and other services, then you will need an
even greater
Risk only
funds you can afford
to lose.
A final word
about Forex
funds. Use only funds that you can afford to lose.
You will
regret it otherwise.
Many folks
are so
excited about beginning their currency trading that they go out and
take funds that they should not be taking to begin with.
Pulling
money out of credit cards, selling family heirlooms or dipping into
your children's education fund is not only unwise, it will result in
you losing money. Without getting into an analysis of Forex
Psychology, take it on faith that when the money you have invested is
money you cannot afford to lose, you make different decisions in
comparison to a situation where the money you have invested is "play
money" that won't really matter if you lose. Trading
currencies
successfully is a challenge as it is. Don't make it harder by
putting the extreme pressure upon yourself of being in a position where
you cannot afford to lose. Your emotions will get the better
of
you and your trading decision making will suffer.
Trade
only with funds you can afford to lose.
Don’t forget to
register
for all of our free Articles, Videos and Tutorials available in our
members area as
well.
|
|
