The amount of capital needed to start trading differs from trader to trader. It’s typically dependent on how experienced the trader is and what budget they have available. $500 is a pretty decent amount to start trading. In this article, we’ll discuss why.
Forex day trading – what is it?
Before we look at funds, let’s discuss what day trading in forex is. It involves a trader buying and selling currencies within a trading day. Forex day traders tend to close any open positions before the trading day ends to reduce overnight risk. The trader opens multiple trades or trades numerous times to try and profit off small market movements.
Is day trading suitable for everyone?
Day trading is suited to someone who has the time, expertise and grit to trade frequently throughout the day. It also requires a trader who has the knowledge and experience to make fast trading decisions. This makes it a trading strategy that is less suited to novice traders. However, a budget of US$500 is enough to start trading, provided the trader has properly planned and is aware of all inherent risks.
How do you start trading with US$500?
The obvious answer to this question is to open a forex trading account. But to open this account requires finding a reputable broker with whom to trade.
Choosing a broker
This is probably one of the most important decisions you will make at the start of your trading journey. You want to ensure that you choose a forex broker that aligns with your trading goals. You’ll want a broker that offers user-friendly trading conditions, competitive spreads, flexible leverage and the highest standards in client support. Establish the type of trading platform the broker offers and open a demo trading account to get a feel for the trading experience. Use the opportunity to assess communication and engagement via email, live chat or telephone. Don’t forget to consult customer testimonials and feedback to get insights into what you’ll be signing up for.
Opening a demo trading account
Before you start trading with your US $500, consider opening a demo trading account with your preferred broker. The demo account will help you learn how to execute trades if you’re just starting your trading journey. If you’re a more experienced trader, the demo account will give you the chance to practice different day trading strategies. The more experience you gain, your day trading skills will improve. Once you’ve acquired the necessary trading expertise, you can move over to a live account and start trading with your US $500.
Learning what you can about leverage
Forex trading is highly leveraged. It allows you to open larger positions than your budget or account balance would normally accommodate. Traders use leverage in an attempt to maximise potential profit. However, while leverage can magnify the wins, it can also expose a trader to considerable losses. This makes fully understanding how to use leverage absolutely essential. Remember also, that a risk management plan should come hand in hand with using leverage to safeguard your funds.
Effective risk management
Regardless of how much of an expert you are in day trading, having a proper risk management strategy in place is crucial. The strategy should be a core component of your overall trading plan so that you can successfully reach your goals. The trading plan should include what you hope to achieve, the rules by which you’ll trade, and the risk management tools you’ll adopt. This will largely depend on your tolerance for risk and the US$500 budget you have to trade with. A trading plan that integrates risk management measures will help you safeguard your funds. It will also provide the focus you need to manage your emotions which oftentimes adversely impact trading outcomes.
Setting reasonable trading goals
As we’ve stated, in the process of building a trading and risk management plan, define your goals. It doesn’t matter whether you have US $500 or US $10k to use for trading, focusing on properly defined objectives is a better recipe for long-term success. But ensure the goals are realistic, and not some attempt to get rich quick which often results in substantial losses.
Diversifying your trades
Day trading involves a higher volume of trades being executed frequently throughout the day. Consider diversifying those trades in order to spread the risk. The forex market, like other markets, is highly volatile. It is impacted by factors such as geopolitical crises, economic news and announcements, investor sentiment, environmental issues, etc. By diversifying your trades, i.e., trading in different financial markets, you minimise the impact of potential losses incurred by a single type of financial instrument.
Educational trading resources
Regardless of your budget, be this US$500 or less, knowing everything there is to know about trading is key. If you’re undertaking day trading, knowing what impacts market volatility and price fluctuations is also very important. In order to build your knowledge, ensure you trade through a CFD broker who offers a wide variety of top-tier educational resources for ongoing learning. T4Trade is a powerful broker that provides traders with extensive material to become more skilled in trading.
Through the T4Trade Academy in particular, traders can access podcasts, webinars, Live TV and even an Economic Calendar in order to gather crucial insights for trading. T4Trade’s extensive blog page provides a wealth of trading tips, ideas and concepts to improve your trading outcomes. Their FAQ page is also an important source of information, answering many of the pressing questions that traders are asking.
In summary
Day trading with US $500 is possible, depending on your trading goals and your expertise. Regardless of the amount you decide to invest, be sure that it’s an amount you can afford to spend. As we’ve already mentioned, trading is a very volatile and risky venture. Traders may earn large profits but they are also at risk of losing massive sums of money too. What does this mean? Ensure you are using funds that haven’t been set aside for other necessary needs like your pension, going to university or buying a car.
Traders are often tempted by some scheme or another that promises 100% return within a quick period. Unfortunately, the reality is that trading puts you at risk of losing all your money if you don’t remain focused, don’t plan properly, don’t constantly monitor your trades, or act impulsively. Follow the rules of your trading plan and adjust only when necessary.
Disclaimer: This material is for general informational & educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked, in this communication.
