Determining the amount of money you need to start down the path of trading for a living is a complex process and one for which there are no shortcuts. The biggest and most lethal mistake that traders make when they decide to go “full-time” is being undercapitalized. It will be your “patient zero” of mistakes, from which all others will be spawned. It is important to keep in mind that the amount of capital traders have at their disposal will greatly affect their ability to succeed in forex trading.
Forex trading is not going to take your $10,000 account and turn it into $1 million. The amount we can earn is determined more by the amount of money we are risking rather than how good our strategy is. The old saying “It takes money to make money” is an accurate one, forex trading included. But that doesn’t mean it is not a worthwhile endeavor. After all, there are many successful forex traders out there that trade for a living. The difference is that they have slowly developed over time and increased their account to a level that can create a sustainable income.
Due to the availability of leverage, forex traders can make a return on a single trade that is multiples of the margin they used to open the trade. However, leverage is a double-edged sword in that big gains can also mean big losses. Therefore, reliance on excessive leverage as a strategy typically leads to a destruction of your account capital over the long run. This is because it only takes one adverse market move to drive the market far enough and triggers substantial losses.
The reality of forex trading is that it is unlikely to make millions in a short timeframe from trading a small account. While profits can accumulate and compound over time, traders with small accounts often feel pressured to use large amounts of leverage or take on excessive risk in order to build up their accounts quickly. To put it into perspective, professional fund managers with millions of dollars at their disposal often make less than 10% to 15% per year, which means that the idea traders with small accounts could make double, triple or even 10 times their money in a single year is fairly misguided.
Trading any market successfully is a long-term endeavor. It takes years, not months or weeks, to become consistently profitable. Armed with that information, it becomes much easier to take things slowly. Keep bets small and focus on quality setups, rather than attempting to trade every day. Deciding whether you have enough to start trading ultimately ends with looking at what you expect from the market, and what sort of risks you are willing to take. If you are looking for fast gains, but have minimal capital and are by nature cautious, you are probably not going to attain your goals.
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