The Forex market gives millions of traders several chances to make money every day. As a matter of fact, over $5 trillion is traded on this market every day. For this reason, the market attracts all sorts of people, most of whom are looking to make a quick fortune.
However, forex trading is not a get-rich-quick scheme. It is marked with extreme risk and high volatility. In fact, most beginners end up making losses their first few times in the trade. The good news is, nowadays, you can start trading with as low as $1. A good rule of thumb is never to trade with more than you can afford to lose. With that in mind, let’s see how best to invest your $100 in the forex market.
Step 1: Do your due diligence
In the forex market, it always pays to be informed. As a beginner, you’ll need to familiarize yourself with the intricacies of forex trading. This involves knowing the major and minor currency pairs and the best time to trade each of those currencies. Further, you will need to understand the driving forces behind the price movements of these currency pairs. With this understanding, you will be capable of predicting the price moves before they happen.
Prediction of price changes depends on two forms of analysis — fundamental and technical analysis. Fundamental analysis involves keeping up with economic news events and the state of the economy of the countries whose currency you’re trading. Technical analysis involves studying chart patterns to predict likely future price moves.
Fundamental analysis
As aforementioned, this analytical method is involved with the state of the economy of the countries in question. Any geopolitical news, economic events, or tragedies that affect the country’s economy fall under fundamental analysis.
Natural disasters and tragedies such as acts of terrorism may be difficult to predict. However, most economic events are usually scheduled on the economic calendar. Most forex brokers will usually provide this calendar for free on their websites. Events that can affect a currency’s value include releases such as GDP data, employment statistics, CPI, and monetary policy from central banks.
Such releases can shed light on the overall long-term trend of a country’s currency. Additionally, released data that is contrary to analysts’ expectations can cause volatility on the price chart. Knowing such information beforehand can help you take advantage of the short-term price moves caused by such news releases.
Technical analysis
This analytical method involves studying price charts to point out any discernible patterns. Here, traders utilize several technical indicators to predict price retracements, trend reversals, and continuations. Such indicators include overbought and oversold level indicators, Moving Averages, Fibonacci retracements, Bollinger bands, and volume indicators.
Additionally, using technical analysis, traders can identify levels of support and resistance, which is where trends are likely to reverse due to the forces of demand and supply. Trading volumes can also shed light on how much momentum accompanies the different price moves, which points to the likely longevity of a trend.
Step 2: Start trading on a demo account
Once you’re comfortable with the ins and outs of the forex market, it is time to try your hand at trading. A demo account offers you a chance to trade on the live forex market with virtual money called paper money. This allows you to develop a strategy and test it out without having to risk any capital.
Therefore, you should take advantage of this demo account to develop your trading strategy into a tried and tested trading plan. If your broker supports the Meta Trader trading platforms, you can employ expert advisers to help you test your strategy. Expert advisers (EAs) are automated programs that allow you to enter the parameters of your strategy, after which they identify trade opportunities that satisfy those parameters. These EAs will also execute the trades for you if you so wish.
A demo account will help you get a feel for the market and see whether you have what it takes to be a trader. Even if you’re risking virtual money, you’ll experience all the emotions common to trading this high-risk market, and hopefully, you’ll learn how to control them.
Step 3: Fund your account and start live trading
Once you’ve developed a successful trading plan, it is time to try your luck in the live market. Needless to say, your choice of broker at this stage will be paramount to your success. FOREX.com, IG, and eToro are some of the best brokers for your $100 budget. eToro also offers a copy trading service, which allows you to copy the strategies of other expert traders on the platform.
After some time, once you’ve found success, you can reinvest your gains and increase your working capital. However, never trade with more than you’re comfortable with. As a beginner, you will also want to stick with one currency pair for your trades.
The best pair for beginners is EURUSD. This is because there is a lot of economic information available on both currencies, which can help you predict their price movements. Further, it is highly liquid and boasts the tightest spreads of any pair. This is why this pair is the most traded on the forex market.
Conclusion
The forex market offers traders several chances to make profits predicting currency price moves every day. However, it is a high-risk market, and the chances of making a loss are very high. The higher your investment, the more profit you stand to make, as is with losses. However, you do not need large amounts to start forex trading. Most brokers accept a $100 minimum deposit, some even going as low as $1.
To start trading with $100, you will first need to do extensive research on the intricacies of the forex market. Once you’re comfortable with those, open a demo account and start paper trading. This will help you develop a successful trading plan. With this trading plan, you can trade the live market with your $100 for profit. Alternatively, you can utilize forex EAs and/or copy trading.
