I usually come across a lot of questions regarding the ideal amount of capital that you should put into forex trading.
On the one hand, I recommend risking money you can afford to lose. On the other hand, there are a lot of risks associated with capital shortage.
You see, once you get into live forex trading, the way you look at your capitalization will never be the same. Forex trading is now a business – for you a job.
This means that you are the boss and like any other business, you need a business plan.
You need to know what you will do from start to finish and how you will react to any foreseeable and unforeseen circumstances.
According to the saying,If you fail to plan, you have already planned to fail.“
So, what’s a great way to start having this business mindset?
One of the main business principles that you need to understand is this It requires making money.
Before getting into live forex trading, consider what kind of lifestyle you want as well as the potential costs you may incur (equipment, services, drawdowns, etc.).
After all, one of the biggest reasons many traders and entrepreneurs fail is not because they are not good, but because they are undercapitalised.
Having the right financing will allow you to get rid of periods of bad business (bad trade), and will give you a higher chance of surviving long enough so that you can experience periods of good business (good trade).
To give you an idea of how much you should ask yourself, here are some important questions you should ask yourself:
- Will you be trading full time or part time?
- Will you make a living from forex trading?
- Are you going to support your family or just you?
- How will you learn?
- How much will you spend on trading tools such as charts and news feeds?
- How much can you lose?
- Do you make more money being right than wrong?
- What is the average variance of returns on a weekly or monthly basis?
- How big a drawdown can you take?
- Are you willing and able to start over if you blow your account completely?
After answering questions like these, you can estimate how much you need to get started. Once you have decided on your initial capital and started your forex trading business, only then can you start growing it.
But of course, like any other business, you should only expand when you are already making money and are successful. You’re not building a second McDonald’s if your first is still struggling to turn a profit!
These are all basic management principles, but they will be essential to laying the foundation for your career and business.
So make sure you have a solid trading plan and business plan in place before you decide to get your feet wet and get in on the action.