The Octa experts explain how anyone can start trading Forex on a budget, and what important steps investors in South Africa need to take to mitigate risks and maximise trading opportunities.
All investments require capital to start. Fortunately, investing in the Forex market requires a significantly smaller budget than most other types of investment, be it stocks, mutual funds, ETFs, or bonds. Compared to the hundreds or, often, thousands of U.S. dollars you need to enter those markets, Forex trading presents a much more attractive opportunity with just as much as 100 USD enough for a comfortable start. Still, some questions remain to be answered. How can you start trading Forex with 100 USD? What strategies should you use? Learn the answers in this article.
Can you trade Forex on a budget?
Yes, you can trade Forex on a budget. However, you have to adhere to several important principles which will make your trading more safe and professional.
1. Employ risk management techniques
The Forex market is subject to high volatility, which means that asset prices can experience significant fluctuations during the day, leading to increased risks for traders. Due to this fact, it’s important to identify entry and exit points for your trades in advance. Stop Loss and Take Profit orders will solidify those points in the chart. This will cut your potential losses in advance and help you resist the temptation to leave the order open when the profit target has been reached.
Even with a small budget, it is important to avoid putting a significant portion of it into any single trade. While a couple of losing trades may not have an immediate impact, a series of losses could potentially wipe out your entire capital. The ratio generally considered safe here is not to spend more than 1% of your capital per order, while keeping your loss-per-trade at a maximum of 25% and quit it once it gets there.
2. Develop a well-defined strategy
Your Forex trading strategy has to bring profits in the long term. Otherwise, your trading will hardly bring any consistent returns. A day-trading strategy can be based predominantly on technical indicators, while medium- and long-term strategies should also include fundamental data, such as economic indicators and important economic events.
If your budget is limited, try testing your strategy first on a demo account to identify its weak points and make necessary corrections. If the strategy is not properly optimised, you might lose a significant part of your capital to unprofitable trades. You can also back-test your strategy using historical data in MT4’s Strategy Tester tool.
3. Use leverage, but wisely
Using leverage, you can open trades that are up to 500 times bigger in value than your capital. That means that with 100 USD and the leverage of 1:500, you can open a 50,000 USD trade. But be careful, as leverage is a double-edged sword. While increasing your potential profits, it also increases your potential losses. Professional traders tend to use lower leverage, with an upper limit of 1:200.
How can you start trading Forex with just $100?
Now that you have a working trading strategy and all the risk management techniques in place, you can start trading with a live account. Just open a trading account and make a deposit via your favourite method.
After depositing into your account, you are all set to open your first trade. Choose major currency pairs (for example, EURUSD, GBPUSD, USDJPY), as they typically have tighter spreads and higher liquidity, meaning that you will pay less in fees and get a higher speed of order execution while reducing the risk of slippage.
Conclusion
Trading Forex on a budget should in no way put you off. Rather, you might want to consider several important factors described in this article to maximise your profit potential and reach your financial goals. It is certainly possible—even with as much as 100 USD.