Is $500 Sufficient to Start Forex Trading ?… Like the others mentioned you can open an account and start trading but the amount is too low for you to actually make any real profits from.
While you won’t get rich by trading $500, it is sufficient to start trading Forex. You can trade 0.01 lots until you get comfortable and consistently profitable.
But I would recommend to learn as much as you can and to trade a demo account for a while before you start trading with real money.
Although there is no hard and fast rule for how much you should have in your account to start trading, many brokerages will require you to deposit a minimum of 2000 dollars. I believe that amount is good enough if you want to “wet your feet”; however, I don’t think it is enough to trade for a living, if that is your goal.
Mathematically speaking, smaller accounts have lower odds of achieving positive results. This is so because:
- Mistakes are magnified in smaller accounts. You have less room for error; therefore, a lower probability of success. You won’t be able to get by if you make mechanical mistakes as opposed to larger accounts where risk is more linear.
- You won’t be able to create a certain number of trading occurrences. A study done by a major clearing firm analyzed what percentage of their retail accounts were profitable in the mid 80s to mid 90s, and that number came in at around 8%.
The most profitable accounts were those with the highest level of activity.
This is so because our statistical chance of reaching our expected results is a function of the number of times something happens. In other words, the more you trade a winning strategy, the closer you will get to your expected results. – that is, if you trade it flawlessly. Also, trading a lot builds and refines one’s mastery.
The most active traders are the most successful because they got to refine their skills. They made mistakes over and over again and learned from them until they didn’t make those mistakes anymore.
That is what happens when you stay engaged.
In a small account, it is very difficult to keep a certain level of engagement.
Therefore, how can you be good at something without having practiced a lot, faced your fears, analysed mistakes and worked on your flaws?
- Even if your strategy is a winner and trading errors are completely eliminated, cost of slippage (commissions, account fees and bid-ask spread) will eat into profits because their importance will be magnified.
Therefore, to counteract that, smaller accounts require taking greater risks, at least until the account grows to a decent amount. Taking such risks equates to higher odds of massive drawdowns after just a few consecutive losers, followed by an eventually blow up. At a mere 30% drawdown you have to gain 42.9% just to break even, and at a 50% drawdown, you have to double your money. This is just brutal financially and emotionnally.
Instead, my intention is to empower you and let you know that you can succeed at trading. It is attainable, but there are some truths that you need to understand, so that you can better prepare yourself. Preparation is everything in this business.
Yes, you can turn a small starting account into something pretty significant, but the likelihood of that happening is rather low.
What I would suggest if you insist upon trading with a small account is to lower your expectations. Be prepared to lose it all and consider it as a learning experience.
Don’t expect to be a millionaire by the end of the year….
Remember “skills over money” as your motto.
If you keep an open mind filled with childlike curiosity, and if you cultivate an eagerness to learn and build your skills instead of putting your attention right away on the monetary rewards, you will be far ahead of the crowd…