How much money do you need for trading?
There’s a common misconception that at least $1,000 is needed to start trading. That’s not true. The minimum deposit needed on Olymptrade is $10 or €10, while the minimum trade amount is $1 or €1. That means you can open several trading positions even with the minimum deposit. It would be enough to try trading out and get a feel for the market. However, having realistic expectations is key. The probability of making a million with a $10 investment isn’t high.
There’s a direct connection between your trade amount and potential profit. The more funds you invest in a trading position, the higher your potential income.
Let’s take an asset with 82% profitability:
- If you invest $10, your profit is $8.2.
- If you invest $100, your profit is $82.
Tip #1: Start small
You can start trading with just $10. A slightly higher amount ($20 to $50), however, would give you greater flexibility in managing your trades. That’s enough at the beginning of your trading career.
Starting small has its benefits. Trading on a real account with a small deposit lets you learn and gain experience. At the same time, it poses a risk of only a small loss, so you won’t feel too stressed out.
Tip #2: Consider risk and reward
In fixed-time trading (FTT), you forecast whether the price will rise or fall during a particular period. Before opening the trade, you are shown the profit you can get if your forecast is correct. As mentioned earlier, if an asset has 82% profitability, you can earn $8.2 in addition to your $10 deposit.
Note that even though your account balance can quickly double, an unfortunate trade can wipe your investment. That’s why it’s important to avoid spending your entire deposit on a single trade.
Tip #3: Don’t put all your deposit at stake
To keep your risks in check, don’t risk more than 10% of your deposit in one trade. Usually, it’s recommended to spend 1% to 5% of the account’s balance on a trade.
For example:
- With a $100 deposit, you can safely trade $5 and earn around $1 to $4.5, depending on an asset’s profitability.
- With a $500 deposit, you can safely trade $25 and earn around $5 to $22.5.
In each case, even if a trade goes bad, you will have enough money to open 19 more trades at the same amount.
Tip #4: Plan your trading budget
Make sure that you estimate your risk tolerance correctly. While you can determine your trading budget from the perspective of how much you can earn, check that the deposit amount aligns with your financial situation.
To calculate an optimal trading budget:
1. Choose an investment amount per trade based on potential profit by calculating: Potential Profit / Profitability = Trade Amount. If you’re using Forex mode, decide the maximum amount or Stop Loss you’ll risk per trade.
2. Divide the amount you calculated from Point 1 by the risk percentage you’ve chosen. As explained before, the recommended risk percentage is 1% to 5%.
3. The resulting number is your optimal account balance. Make sure it is money you can afford to lose.
So, if you are looking to get a potential profit of $10 by trading on an asset with 80% profitability, your trade amount should be $12.5. If you’re comfortable risking 5% of your account balance in a trade, then your optimal account balance or budget is $250.
Key takeaways
1. When planning your trading budget, remember that you’re doing it to trade effectively and comfortably. Only use money you can afford to lose.
2. Never compare yourself to others. Focus on your own trading style and risk tolerance.
3. If you are a beginner, start with the minimum deposit.
4. Approach trading systemically: Focus on gradually increasing your account balance and never sink all of it into a single trade.
5. Calculate your trading budget to form a deposit that accounts for 10 to 20 trades.
6. While there is no limit to how much you can earn, it’s crucial to have realistic expectations. A lot depends on the size of your investment and proper risk management.
Next
In the next lesson, you’ll learn about trading assets and modes.