The practice of currency trading is an attractive prospect for investors because of its accessibility. In other words, there are not too many restrictions to enter the market. When an individual decides start trading forex online, there is a certain strategy that they follow. Most traders do short term trades where they place a trade at the start of the day, but close it at the end of the day. These traders are known as day traders and are found in the best online forex trading platforms. Intraday traders have such short trading windows because they cannot spend many hours there.
Minimum capital required by a daily trader
A day trader must have $ 25,000 in their account before starting a trade in the United States. The deposit must be made into the client’s account before the start of the trading day.
Leverage in intraday trading capital
The leverage associated with US based day traders can be up to 4: 1 as offered by some of the best online forex trading means. This implies that a person who starts the day with an account balance of $ 40,000 allows the trader to have $ 160,000 in daily trading positions. Some platforms offer lower leverage.
Understand the risks
Currency trading involves buying low and making a net profit after selling high. The main risk we face during the trading day is the fluctuation of stock prices. The volume of these markets is enormous. Therefore, both newbies and veterans of the trade make the trade at some point because the trade does not require a lot of capital.
Types of business risks
There are significant risks associated with currency trading. These include:
- Interest rate risks: This risk is associated with fluctuations in interest rates that occur in a given country.
- Take advantage of the risks: In constantly changing market conditions, the intensive use of leverage will result in losses that exceed the initial investments.
- Transactional risks: They refer to the period of time between the opening and closing of a contract.
- Marginal risks: This is another case which greatly increases the losses. This is the risk that a trader will declare bankruptcy when entering into a futures contract.
Given the unpredictability of trading, risk management is an important part. The common consensus is that trading with leverage carries the highest degree of risk. Traders can also use the 1% rule to reduce damage from trading risk. This means that a trader should only risk 1% of his capital for a single trade.
Lot sizes and nuggets
Before we can start trading forex online, there are two terms that the day trader must know in order to determine the minimum capital. Lots refer to the units in which currency trading takes place. The three types of lots are micro, mini and standard. On the other hand, pips are used to represent the change in the price of the currency in a trade. The value for all currencies other than JPY is 0.0001. For JPY, it is 0.01.
Calculate your minimum capital before trading
As a beginner, it is important to build up minimum capital to better manage risks. Consider a risk of $ 100. Adding the 1% risk confederation, the risk amount is $ 1. To determine the trading risk, you need to multiply the number of pips by the value of the pip and the number of lots. If the business risk is greater than the 1% mentioned above, the strategy must be rethought.
Participating in forex trading requires a little planning to prepare for a possible loss. Therefore, the implementation of certain parameters can significantly mitigate the risk of incurring substantial losses during this period.