How much money does one require to begin Forex trading?

It is a well-known fact that Forex trading is an activity that promises a high rate of returns once beginners learn to see the patterns in the market and learn to trade with discipline. However, for one to commence Forex trading in Pakistan, there still is an important question that goes unanswered - What is the minimum investment amount required?

For most enthusiasts looking to enter the Forex trading market, this is a question that requires a lot of planning and analysis before settling upon the right answer. 

Unlike the stock market, Forex markets do not expect a legally mandated investment amount to start a trading account. In this market, traders can start an account at the lowest possible expense that they can afford. 

However, this does not mean that traders should start with an investment of 10$ or so. A trading account should be sufficiently large and endowed. So, what are the factors upon which the minimum amount of a trading account should be decided?

Factors to consider before deciding the investment in a trading account

1) The average length of a trade:  Traders have to decide upon how long they intend to float a position. For traders who are looking to indulge in day trading, opening an account with a very moderate investment means that the returns on their trades are likely to be equally paltry. It is always advisable to start accounts with an investment of at least $500. This is because it allows a better flexibility on the positions that can be opened.

2) Risk to Investment ratio: In Forex trading, it is always advisable to open a trade with only 1% of the total investment. 3% on a trade is the maximum that most Forex brokers in Pakistan recommend. This being the case, going with a small account of $100 without leverage would limit trading to an amount that is as low as $1. Such a small investment may never bring enough returns to encourage the trader. Hence, this needs to be borne in mind while making a trade.

3) Leverage and Spreads: The profits a trade will make from Forex is dependent on the leverage that a Forex broker may allow him to open with. Equally important is the size of the spread. Tighter spreads mean that traders get to benefit more from the profits they make and can buy more currency units. However, both of these vary from one Forex broker to another. Hence, it is important for traders to factor the account type offered by a Forex broker before deciding upon the investment.

For novice traders, it is always important to decide upon the investment before they commence Forex trading. While the Forex industry places no restrictions on the size of the trading account to start with, it is always wiser if Forex traders consult with reputed brokers before opening a trading account. If they are not keen on committing their funds to investing in an unfamiliar platform, traders can always avail the option of trading on a demo account. Some of the best Forex brokers in Pakistan like WesternFX offer a demo trading account for those looking to test the waters.