For most people with little knowledge and experience, it’s common to hear questions of whether one should start trading forex with $100. It seems like $100 is a relatively affordable number.
Statistical research on global per-capita income shows that, even in the poorest countries, most have the means to come up with $100. Fortunately, as the currency market is the highest leveraged, it welcomes the smallest account balances.
So, in a nutshell, you certainly can start trading forex with $100 with a vast majority of brokers, with some even allowing deposits from a dollar. However, the real question should probably be whether anyone should start trading currencies with $100 as it has profound implications on their long-term performance.
Capital is king
Ultimately, the size of a trader’s equity doesn’t determine their level of skill. If you can produce a 200% return on a $10, you can theoretically perform the same on a $10 000 or $100 000 account.
Yet, like any business, your trading capital is essentially the engine of your entire ‘trading operation.’ There are several reasons more than 90% of traders lose money or struggle in forex.
One of the critical causes is most people are under-capitalized and typically trade with money they cannot afford to lose. Hence, starting capital is the foundation that you build from to becoming a long-term, consistently profitable trader.
Put simply, the larger your account is, the less inclined you are to take low-quality positions. It’s a natural human emotion to be attracted to large numbers. The entire online trading industry is built on the dream of making millions trading the markets.
Unfortunately, the messaging often hide how long it can take to reach those levels or that some traders had initial wealth. Overall, your average retail trader is inherently looking for the most significant gains with the smallest account possible.
The lower your starting balance, the more inclined one is to over-trade to compensate for this deficiency.
If you can afford to start with more than the average person, you can still perform fairly well with fewer positions than someone with a lower account who’d need to trade more and longer to replicate the same performance.
Why you should start with $100 trading forex
Considering the median per-capita income of the global population, $100 is a reasonably affordable amount, a figure many can set aside as disposable income. It’s pretty significant beginning with funds not connected to your living costs, savings, and taxes.
With this approach, traders have a far less emotional attachment to the money in their accounts. In other words, you can easily afford to lose and still sleep soundly at night since your losses are proportionally minute to a larger-funded trader with more emotional devotion to their account.
You have down-to-earth expectations as you don’t anticipate making a living or quitting your job. $100 is a realistic, relatively cost-effective figure to get one’s feet wet while putting themselves in an advantageous position to grow organically.
Overall, it’s better to start small than with more significant sums of money. $100 provides benefits even for experienced traders who may use real funds to test a new strategy or system in live conditions rather than on a demo account.
Why you shouldn’t start with $100 trading forex
Of course, the overarching drawback is your profit potential is drastically lowered, which can be psychologically frustrating. Hence, one is likely to commit an array of emotionally-fueled mistakes such as over-trading and over-leveraging.
In the end, your chances of blowing $100 increase tremendously through making irrational decisions. So, there is little room for error and less leeway. The other issue is you are limited to how many assets you can trade comfortably.
Each currency pair comes with different positional values. So, in essence, you’d only be able to hold a few positions at a time to prevent having a margin call.
What if you really can only afford $100?
So, what’s the solution? Several brokers offer special accounts like nano or cent accounts.
These solve the issue of being restricted by the number of tradable markets on a standard account since each position starts from nano lots (0.001) or is measured in cents rather than dollars.
Of course, the other alternative is saving enough for a larger balance. When it’s all said and done, it’s not necessarily the amount of money you start with that matters but having a time-tested profitable strategy.
So, the real question should be, do I have enough experience and data to show I can profit from the live markets? It all starts with extensive demo trading, something which new traders often overlook. At this stage, a trader tinkers with various strategies before finding one that works.
After that, they would essentially ‘stress-test’ that strategy and understand all the necessary numbers like risk-to-reward, percentage returns, profit factor, drawdown, expectancy, etc.
So, an intelligent trader uses all this information and bases their potential live performance on the starting balance and not the other way around.
Final word
A few decades ago, the currencies market was mostly reserved for large financial institutions and clients connected to them. Traders needed significantly more capital in the hundreds of thousands of dollars.
As time has gone on with technological advancements and the decentralization of forex, the barrier to entry has been lowered drastically, a benefit and a drawback for the average Joe.
Ultimately, there is nothing wrong with starting on a $100 balance, particularly if you’re new to the game and it’s all you can realistically afford to lose.
What’s crucial to note is the smaller your account is, the harder it is to grow to a meaningful amount over time. When traders become aware of this reality, it may cause them to overtrade in an effort to compensate for the low balance.
Hence, how much you begin with does affect your expectations. Although it’s possible to grow any so-called small account into an astronomically large one over time, you might be better off starting with much more money from the get-go.
Yet, traders should only do this with the right experience, at a place where they have sufficient data and time to prove their strategy is already profitable. Ultimately, any trader aims to have a thoroughly proven system traded with the most substantial capital possible for maximum gains.
