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Account balances- What's realistic?
Hello fellow forex-ers!
I need a bit of guidance- I see a lot of different brokers out there that offer small start up deposits and I guess I'm a bit confused as to how this could work out to a positive and profitable thing to get in on.
Now correct me if I'm wrong, but if you only deposit $50 into an account, where one lot on FXCM is around $20-$36, you could potentially blow your entire account on one or two lousy trades, right?
So I guess my second question is: what is a good starting deposit on the micro level?
Feel free to educate me on this topic- right now I'm simply demo-ing and, while I'm having a great time doing that, I'm not starting out with $50,000 (though I also don't plan on starting with just $50 either). And while I'm starting to see improvements in my trades, I also know I need a lot more time to learn the ins and outs of leverage and margins, particularly as it pertains to FXCM.
All the best!
Hello chfxnewbie, and thank you for your post! On behalf of myself and everyone here at FXCM, welcome to the forum community!
What is a good starting balance to trade in the FX market with?
Firstly I'm really excited to hear that you will soon be making the transition over to a live account! There's nothing quite like trading in the live market, and here at FXCM we always have our clients best interest in mind. Do you have a general idea of how much you want to get started with? Standard accounts also have the functionality of trading micro lots (increments of 1K) available and offer many advantages over micro accounts.
What advantages do standard accounts have over micro accounts?
Some of the advantages to holding a standard account include but are not limited to:
- Different account denominations.
- Different account types and platforms.
Please click here (Benefits of Upgrading to an FXCM Standard Account) for more information on the advantages of having a standard account.
The minimum starting balance for a standard account is $2000. Please let me know if a standard account would be something of interest to you, and I will be more than happy to put you in touch with a specialist that can go over all your options. If you are looking to open a micro account, you can open one by clicking on the link below:
Please let me know when you have submitted your application and I would be more than happy to help you with the depositing process. If you are still not quite sure about how much you would like to start with, please click here to read an article that I think you will find helpful towards making your decision.
The amount of money that you should deposit into your account is going to depend largely on your trading style, the maximum amount of positions you want to have open at once, and your trade sizes. In my personal opinion traders should always have enough equity in the account to maintain an effective leverage of 10:1 or less.
Why is lower leverage important in order to improve one's chances of being successful in the long term?
One of the main reasons that new traders lose money is because they over-leverage their account by opening too large of a position, too many positions, or a combination of both. When you use excessive leverage, a few losing trades can quickly offset many winning trades. To clearly see how this can happen, consider the following example.
Scenario: We have four different traders trading on different levels of effective leverage.
Questions: What happens to Trader A account equity when the USD/JPY price falls 100 pips against them?
Answer: Trader A loses 41.5% of his account equity.
By using lower leverage, Traders B, C, and D drastically reduce the dollar drawdown of a 100 pip loss. Please keep in mind that it is not uncommon for currency pairs to range at least 100 pips a day. By over-leveraging his account, Trader A has lost almost half of his equity in just one trade. We believe that using 10:1 effective leverage on an account is a good general rule of thumb, or never having more than 1K of open exposure for every $100 of equity in the account.
Does lower leverage really work?
FXCM's experience in Hong Kong, where significantly lower leverage levels are mandated by law, suggests lower leverage results in more successful trading. As another example, many professional traders use up to 8:1 leverage and typically much less. The reason to use low leverage is to make sure that a losing position does not make a significant negative impact on the overall account.
How can I use lower leverage?
The DailyFX.com Research and Education team has created a variety of trading videos to help you identify trading opportunities using lower leverage. To learn more about money management and the benefits of trading with lower leverage, log into the DailyFX+ Trading Course. Once you are logged in simply click on "Money Management" on the left.
For those who don't have a live account with us yet that's ok!
Please feel free to send me an email at email@example.com and I will be more than happy to set you up with a trial version of DailyFX+.
What is more important, the margin requirements on the account or the effective leverage applied to the account?
Keep in mind that the margin requirements on your account is not so much as important as the effective leverage that is applied to the account. As I mentioned here at FXCM we believe that using no more than 10:1 effective leverage on an account is a good general rule of thumb in order not to over leverage the account, or never having more than 1K of open exposure for every $100 of equity in the account. Let's use a numerical example in order to better understand this concept.
Let's say that there is $5000 in an account. If I am going to follow the 10:1 effective leverage rule then that means that I am not going to open more than 50K it total positions at any given time. A few examples of this include but are not limited to not opening more than:
If there is 50K in total open positions on a $5000 account, if you are using no more than 10:1 effective leverage then more positions will not be opened until some are closed out. I tend to use about 3:1 to 5:1 effective leverage on my personal account.
Please click here to read an excellent article on effective leverage written by Jeremy Wagner, our valued Lead Trading Instructor. It's one of a series of articles written on client profitability called: Building a Better Wheel: Incorporating Profitability Statistics. I hope you find that helpful chfxnewbie!
Based on my position sizes and trading style, it doesn't seem like have enough equity to maintain 10:1 effective leverage. How do I deposit funds?
Please click on the link below that corresponds what type of account you have for more information about depositing funds:
Please let me know when you have made the deposit and I would be more than happy to help expedite the process for you. Thank you in advance for your time and I look forward to hearing from you soon!
Thank you again for your post chfxnewbie! Please feel free to post with additional questions or contact me directly at firstname.lastname@example.org
Originally Posted by chfxnewbie
Last edited by Julius at FXCM; 05-20-2012 at 07:58 PM.
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My preference is to have at least $5K of starting capital due to the reasons below.
1. $5K is a lot of money for a lot of people, having this amount as your trading capital would make you a defensive player, which you should be. If you only have a 50 or 100 dollars, you can tell yourself that "oh it's just 50 or its just 100", no big deal.
2. $5K, would let you trade at least 1 microlot per trade assuming your risking 1% per trade. The $50 of potential loss per trade would make you sweat as a new trader. This will help you trade only the best opportunities as you will be in defensive mode.
3. You will learn how your emotions react to each trade, win or loss. This way, you will learn to control your emotions.
It does not mean, that you have to loss the $5K, when you're down 10% within a month, take the money out and go back to the drawing board.
This works for me, when I started out, but each one of us is different.
Originally Posted by chfxnewbie