How Much Money You Need Trade Forex, Day Trading or Swing Trading

Cory Mitchell, CMT

Whether you want to day trade or swing trade forex, here are some guidelines on how much money to start with depending on what your goals are. 

Day trading is buying and selling within the day, often multiple times per day, and not holding any positions overnight.

Swing trading is taking positions that may last several hours to several days or even weeks. Positions are often held overnight. Some people are ok with this, for others holding trades overnight will keep them up at night. Decide what type of trader you want to be first, because that will affect how much capital you need. Swing traders need more capital.

Amounts are in US dollars. Convert to your own currency for equivalent amounts.

Some Basics on Forex and How Much Capital is Required

The smallest position size you can have in forex is called a micro lot. This is 1,000 worth of currency. But, brokers provide up to 50:1 leverage, which means your personal capital can be used to take a position that is 50x as large. So in theory, you could deposit $20 in your account and buy 1,000 worth of currency. Don't do that, though.

We need to consider our risk on the trade. 

When starting out, I recommend that you don't lose more than 1% of your capital on any single trade. See Position Sizing for more on how this works.

We can control our risk (potential loss) by using a stop loss. It lets you know how many pips you are risking on the trade. A pip is how price movement is measured in forex. 

How Much Money You Need to DAY TRADE Forex

When day trading, assume that you will need to risk at least 5 pips on a trade in order to give it some room to move and eventually move in your favor for a profit. See Technical Turnaround Forex Day Trading Strategy for an example of how stop losses are used. Some trades may only require 3 or 4 pips or room, but 5 pips is a good estimate.

If you have a US account and are trading the EURUSD (the most popular forex pair), each pip of movement will make or lose you $0.10 when trading a micro lot. 

Therefore, assume that the smallest risk possible on a forex trade is $0.50 (5 pips x $0.10). This doesn't include commissions. 

$0.50 needs to be only 1% of our account, so we multiply $0.50 by 100 to get $50.

$50 is theoretically the least amount of capital you should start day trading with. 

But, there are some problems with this.

  • If you have a few losing trades, you now have less than $50, yet you still have to risk about $0.50 or more on a trade. This means you're now risking more than 1% of your account. If you keep losing, as your % risk to the account increases, you lose your capital quicker and quicker.

  • You can only take trades where the risk is 5 pips or less. That won't always happen. Sometimes our stop loss should be 6 pips away, or 8 pips away, or 10. We can't assume that our ideal stop loss will always be only 5 pips away. Our stop loss is based on what the market provides and is not arbitrarily forced on the market.
    • That said, if $50 is all you have, you could opt to only take trades where the stop loss can be legitimately placed 5 pips or less away from the entry point.

To give yourself wiggle room, I suggest starting with at least $100 for forex day trading. 

If you start with $100 you will need to grow your account slowly. If you are a good trader you may be able to average a dollar or two per day on the high end (see How Much Forex Day Traders Make). 

If you don't mind slowly building the account, that is an option.

If you want to use trading as a source of potential income, then more capital is required. 

Making 10% per month is a goal to strive for. Don't expect it, but it's a goal to work towards. Making higher returns is possible, especially with leverage, but most traders average less over the long-term. Most want-to-be traders lose money. In a single month, or even a day, a trader could make more than that. But over many months, a trader that can average more than 10% a month is doing well.

Based on this, if you can get to the point of making 10% per month, a $1,000 account produces $100 in potential monthly income. A $10,000 account makes $1,000. 

As mentioned, higher returns are possible, but for an estimate, assume you will make 10% per month or less to determine what capital you need, or where you want your capital to get to, in order to start producing the income you want.

How Much Money You Need to SWING TRADE Forex

For swing trading, assume that you'll need to risk at least 20 pips on a trade. This is the difference between your entry and stop loss price. For an example of a swing trading strategy, see the Price Structures Strategy. You may find trades with lower pip risk, but typically 20 pips or more is quite common.

If you have a US dollar account and are trading the EURUSD, each pip of movement will make or lose you $0.10 when trading a micro lot.

Therefore, assume the smallest risk you can take is $2 per trade (20 pips x $0.10). This doesn't include commissions.

$2 needs to be 1% of the account. Multiply $2 by 100 to get $200.

$200 is theoretically the least amount of money you want to swing trade with.

But, there are some problems with this.

  • If you have a few losing trades, you now have less than $200, you still have to risk about $2 or more on a trade, which means you are now risking more than 1% of your account. As you risk more of your account per trade, losing trades wipe out the account quicker and quicker. 

  • You can only take trades where the risk is 20 pips or less. That won't always happen. Sometimes our stop loss should be 30 pips away, or 40 pips away, or 50. We can't assume that our ideal stop loss will always be only 20 pips away (or less). Our stop loss is based on what the market provides and is not arbitrarily forced on the market.

To give yourself more wiggle room, I suggest starting with at least $500 for swing trading forex.

If you start with $500 you'll have to grow the account slowly. If you are a good trader, you may be able to average several dollars per week.

If you don't mind slowly building the account, that is an option.

If you want to use trading as a source of potential income, then you'll need to start with more capital or build your account up to a larger amount.

Making 10% per month is a goal to strive for. Don't expect it, but it's a goal to work towards. Making more is possible, especially when using leverage, but most traders average less over the long-term (most lose money). In a single month, or even a day, a trader could make more than that. But over many months, any trader that can average more than 10% a month is doing well.

Based on this, if you can get to the point of making 10% per month, a $500 account produces $50 in potential income for the month. A $10,000 account makes $1,000.

Swing trades happen slower than day trades. Therefore, you may even want to consider the possibility of making 5% per month. On a $1,000 account, that means averaging about $50 per month, on a $10,000 account that means making $500.

As mentioned, higher returns are possible, but for an estimate, assume you will make 5% to 10% per month, or less, to determine the capital you need, or where you want your capital to get to, in order to start producing the income you want.

Final Word on the How Much You Capital You Need to Trade Forex

Most traders never get to the point of consistently making 5% or 10% per month, even with the use of leverage. They may see these types of returns, or bigger, in short periods of time, but consistency is more elusive. These returns and bigger are available, but only with proper money management and sound strategies.

The absolute minimum to start day trading with is $100 if you want to have any chance at building the account without risking too much and losing it quickly.

The absolute minimum to start swing trading with is $500. Again, this makes sure that there is enough money so that 1% or less of the capital can be risked on any single trade.

Starting with less capital than the recommendations will likely mean taking on excessive risk. This increases the chances of becoming one of the many forex traders who deposit funds and then quickly lose it all. 

If you want to grow your account and eventually build an income, you need to control risk first and foremost. This will keep you in the game long enough to continue honing your skill and reducing the number of mistakes made, to hopefully become one of the few successful traders who consistently make money year after year.

Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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