There are a lot of misconceptions out there as it relates to Forex. One of the biggest debates of all time has to do with how much money is enough to trade and be profitable. I’m not only giving my opinion but I’m giving you facts.
Many traders will preach that you need at least $5000 US to start trade comfortably but my friends, that’s far from the truth. The people who truly understand Forex would know that Forex isn’t about the money but how much you can leverage. The entire premise of Forex is based on leverage.
Leveraging in simple words is allowing you to trade your money at a substantially higher value. So you could have $1000 and be trading as if you had $5000 (Just go research what’s leveraging).
I know exactly where the myth came from and I will bring you to the root of it. Many Traders have the 5k opinion not because they are particularly incorrect but from their experience and the knowledge they have about Forex limits them.
Many of you will come to believe the myth because you have seen it for yourself. So you start to trade at $100 and everybody says you should risk 1%. So you pump in 0.01 on MT4 and enter a buy position and you then set your stop-loss at the next previous low on the h1 then you realize your stop-loss is at around $10 and now you are confused. You realize that you are trading the lowest lot size you possibly can and it’s not allowing you to risk 1% after setting your stop-loss at the place where your strategy dictates.
So few trades after, you blow your account with just 10 trades now you are sure you need a lot of money for you to trade properly ie risking 1% per trade. There are a lot of dilemmas surrounding this topic and you will see them as you read along.
I’ve always said it, Forex is the only university that you control what your school fee cost.
If you are new to trading you shouldn’t be trading with more than $100
So Mr. Squid you just said risking 1% on a $100 account is nearly impossible, so how are you recommending to start trading $100? That’s the million-dollar question. Let me answer this question by telling you about an experiment that was done on monkeys. Scientists placed a group of monkeys in a cage and in the middle they placed bananas in the roof so the monkeys would have to climb to get the banana. Each time a monkey attempted to climb the rope to get the banana they would spray the monkeys with water until they fell off. They continued doing it until the monkeys stopped attempting to go for the banana.
This is where the story gets interesting they replaced one of the first set monkeys. So the new monkey comes into the cage and instantly starts to climb to get the banana. Instantly the other monkeys started to beat the monkey to get down because they knew that they would be sprayed with water. They replaced the first set of monkeys one at a time and each time a new monkey came in the same happened and they pulled down the new money and beat it so it couldn’t climb.
Now they had replaced all the first set of monkeys and none of the current monkeys in the cage had experienced being sprayed with water. But the trend continues as soon as a new monkey comes in and tries to climb they would beat that monkey. They came and saw a trend and just started following it without even understanding.
It’s the same with us humans, we see everybody trading a Standard Account and we started using it. It’s not your fault so don’t worry, most brokers only offer Standard accounts. There are different types of accounts(Micro, Standard). I’m sorry for this long post but I have to explain it as best as possible. On a normal Standard account, it’s impossible to trade $100 and risk 1% especially if you are a swing trader. But with a micro account, you can trade money as low as even $10 and risk even less than 1% even with a big stop-loss.
If you get a Micro account with $100 and you trade with a lot size of 0.01 you won’t be able to blow that account even if you don’t know what you are doing. So a micro account gives you a lower range of risk. So to recap a Standard account trading with the lowest lot size 0.01 will make it impossible to risk 1% per trade. Please understand I’m not saying you can’t trade $100 on a standard account and be profitable I am saying you can’t do it especially swing trading and risk 1% per trade.
So now you know that another account type exists go forth and research widen your knowledge base and get a new perspective.
Before I go there’s another misconception, people normally refer to Micro accounts as Cents accounts which would suggest Micro account is for trading small accounts but while the premise is true that’s not the case for everyone. If you trade less than 1.00 lot then you can still trade a Micro account but if you are trading more than 1.00 Standard Lot then you need a Standard account.