How much money should I start trading currencies with?

You can start trading currencies with very little money. Depending on your objectives (and, how much money you want to make), this can be good or bad.

In the case of starting small (with only $300)…

It is true that you can open a Forex Trading Account with a broker with as little as $300. But, as a general rule, you should plan to loose no more than 1 – 2% of your account balance in any given trade. 2% of a $300 account is $6. When you equate your looses to figures (rather than percentages), you can then easily see what sort of account you will be able to safely trade with (and thus, how much money your likely to make).

With a mini account, each pip is worth $1 (on average). What that means for you (with a $6 maximum allowable loss per trade) is that you would only be able to use stop losses at a maximum of 6 pips. Needless to say, this is not a good idea at all because you will be guaranteed to loose money in that a 6-pip stop loss provides very little (if any) wiggle room to account for market movements and you will be stopped out of your trade very quickly.

On a micro account, on the other hand, $6 losses allow for stop losses that are 60 pips in size, which is great because you can get away with as little as 30 pips for a stop loss and still come out ahead. In this case, a 30-pip stop loss will produce a $3 loss and only a 1% overall loss of trading capital. Doesn’t that look better?

Since the market is in constant motion, testing different price levels as it zig-zags around, you want to be able to stay out of it’s way. Stop losses that are 30 – 60 pips wide will provide all the wiggle room you need in order to stay out of the way of typical market movement, hence preventing you from being stopped out prematurely. In this way, you can win more trades, rather than loose them by getting stopped out too soon.

Therefore, if you have very little to start with as indicated above, stick to trading a miro account and look past dollars and cents in order to see the sort of returns that are possibles (see: FX Trading In Action – An example of making money in forex trading).

In the case of starting with a small bundle like $3,500…

If you apply the same formula that I’ve mentioned above (2% maximum loss per trade), you will see that 2% equates to a maximum allowable loss of $70 on any given trade. Since we have determined that 60-pip stop losses are more than enough, you could trade this much capital on a mini account. But before you do, you should consider one more factor and that is drawdowns (the depletion of your trading capital due to losses). What if you incur a string of losses before you see some profits? You will then have eroded away your capital, which could make a 60-pip stop loss (or, $60) equate to more than 2%. Due to this, it turns out that $3,500 is really almost just an ‘entry’ price that is needed to start a mini account. You are better off having about $5,000 in a mini account in order to be able to trade properly. By the same token, a 60-pip loss on a standard account would equate to $600. If that were to represent a 2% loss of the account balance, there should be at least $30,000 in that account (and, hopefully a lot more for the same reason as above) in order to justify and write-off such a loss. Do you see this?

To answer the question in general, you will be hard pressed to make $100 – $500 per day with only a couple hundred in your trading account (ie: in a micro account). You are more than likely going to require a highly funded mini account and/or a standard account with the minimums I’ve indicated above if you plan to protect and retain your capital long enough to get to the point where you make your daily income target.

My advice: become a pro at capturing pips by practicing on a demo and/or micro account. While you do that, save up as much trading capital as you possibly can.

In reality, if you only had $300 to start with, you would be looking to make $6 – $10/day at the 2% max loss formula. This is not a lot of money, but that is ok because you have to look at the numbers more closely. On a micro account (trading 1 micro lot), $6 profits equates to 60 pips captured. If you can capture 60 pips per day consistently without issue, you will be able to make a lot of money with a standard account. Even if you can only make 20 pips a day – consistently – there is a gold mine ahead of you! Case in point: once you master Forex Trading (even at the micro level), you can scale up later and reap huge profits.

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