How Much Money You Need to Trade Forex (Day Trading or Swing Trading) - Trade That Swing (2024)

Whether you want to day trade or swing trade forex, here are some guidelines on how much money to start with depending on what your goals are.

Day trading is buying and selling within the day, often multiple times per day, and not holding any positions overnight.

Swing trading is taking positions that may last several hours to several days or even weeks. Positions are often held overnight. Some people are ok with this. For others, holding trades overnight will cause them to lose sleep. Decide what type of trader you want to be, first, because that will affect how much capital you need. Swing traders need more capital.

Amounts are in US dollars. Convert to your own currency for equivalent amounts.

Here is a summary chart of how much capital you need to day trade or swing trade forex based on different trading styles. The minimum is the absolute minimum for trading in a risk-controlled way, the recommended amount allows for losses and slight variation in stop loss.

How Much Capital to Day Trade Forex
Based on trading a micro lot, the minimum position size allowed by most forex brokers. Double the amounts if trading two micro lots, or multiply by 10 for trading a mini lot, and so on.

How Much Capital to Swing Trade Forex

Based on trading a micro lot, the minimum position size allowed by most forex brokers. Double the amounts if trading two micro lots, or multiply by 10 for trading a mini lot, and so on.

With both the minimum and recommended amounts you could risk the % you wish (1%, 0.25%, etc.), but the recommended amounts allow for flexibility to take trades with a larger stop loss and not exceed the risk percentage threshold.

Some Basics on Forex and How Much Capital is Required

The smallest position size you can have in forex is called a micro lot. This is 1,000 worth of currency. But, brokers provide up to 30:1leverage (more in some countries), which means your personal capital can be used to take a position that is 30x as large. So in theory, you could deposit $40 in your account and buy 1,000 worth of currency. Don’t do that, though.

We need to consider our risk.

When starting out, I recommend that you don’t lose more than 1% of your capital on any single trade. SeePosition Sizingfor more on how this works.

We can control our risk (potential loss) by using astop loss. It lets you know how many pips you’re risking on the trade. A pip is how price movement is measured in forex.

How Much Money You Need toDAY TRADEForex

When day trading, assume you are willing to risk up to 5 pips (stop loss) on a trade in order to give it some room to move and eventually move in your favor for a profit. See the Double Pump strategy for an example of how stop losses are used. Some trades may only require 2 or 3 pips of room, but 5 pips is a good estimate because when big moves are happening, we may need this stop loss size.

If you have a US account and are trading the EURUSD (the most popular forex pair), each pip of movement will make or lose you $0.10 when trading a micro lot (1,000).

Therefore, to trade a micro lot with a 5 pips loss means we are risking $0.50 (5 pips x $0.10) per trade. This doesn’t include commissions.

$0.50 needs to be only 1% of our account, so we multiply $0.50 by 100 to get $50.

$50 is theoretically the least amount of capital you should start day trading with.

But, there are some problems with this.

• If you have a few losing trades, you now have less than $50, yet you still have to risk about $0.50 on a trade. This means you’re now risking more than 1% of your account. If you keep losing, as your % risk to the account increases, you lose your capital quicker and quicker.
• You can only take trades where the risk is 5 pips or less. That won’t always happen. Sometimes our stop loss should be 6 pips away, or 8 pips away, or 10. We can’t assume that our ideal stop loss will always be only 5 pips away. Our stop loss is based on what the market provides and is not arbitrarily forced on the market.
  • That said, if $50 is all you have, you could opt to only take trades where the stop loss can be legitimately placed 5 pips or less away from the entry point.

To give yourself wiggle room, I suggest starting with at least $100 for forex day trading.Ideally, start with $500 or more.

If you start with $100 you will need to grow your account slowly. If you are a good trader you may be able to average a dollar or two per day on the high end (seeHow Much Money Forex Day Traders Make).

If you don’t mind slowly building the account, that is an option.

If you want to use trading as a source of potential income, then more capital is required.

Based on this, if you can get to the point of making 10% per month, a $1,000 account produces $100 in potential monthly income. A $10,000 account makes $1,000.To make more money each month, you either need more capital or higher returns.

As mentioned, higher returns are possible, but for an estimate, assume you will make 10% per monthor lessto determine what capital you need in order to start producing the income you want. Make this assumption until you have proven to yourself, through actual trading, that you can make more consistently. Then adjust your expectations accordingly.

I trade the EURUSD for about 1.5 to 2 hours per day, and you can see my full method on how to do it in the EURUSD Day Trading Course.

How Much Money You Need toSWING TRADEForex

For swing trading, assume that you’ll need to risk at least 20 pips on a trade. This is the difference between your entry and stop loss price. For an example of how this may look, see the Trade Trigger Examples article. You may find trades with lower pip risk, such as 10 or 15 pips, but typically 20 pips or more is quite common.

If you have a US dollar account and are trading the EURUSD, each pip of movement will make or lose you $0.10 when trading a micro lot.

Therefore, assume the smallest risk you can take is $2 per trade (20 pips x $0.10). This doesn’t include commissions.

$2 needs to be 1% of the account. Multiply $2 by 100 to get $200.

$200 is theoretically the least amount of money you want to swing trade with.

But, there are some problems with this.

• If you have a few losing trades, you now have less than $200, you still have to risk about $2 or more on a trade, which means you are now risking more than 1% of your account. As you risk more of your account per trade, losing trades wipe out the account quicker and quicker.
• You can only take trades where the risk is 20 pips or less. Sometimes the stop loss should be 30 pips away, or 40 pips away, or 50. Our stop loss is based on what the market provides and is not arbitrarily forced on the market.
  • If our account is small, we do always have the choice to limit the trades we take to ones with a small stop loss. Yet this will limit our trading opportunities.
    

If a trade has a 60 pip stop loss, you will need about $600 in the account to make that trade in a risk-controlled way.

To give yourself more wiggle room, I suggest starting with at least $600 for swing trading forex. Ideally, start with $2,000 or more.

If you start with $600 you’ll have to grow the account slowly. If you are a good trader, you may be able to average several dollars per week.

If you don’t mind slowly building the account, that is an option.

If you want to use trading as a source of potential income, then you’ll need to start with more capital or build your account up to a larger amount.

With swing trading, making 5% per month is a goal to strive for. Don’t expect it, but it’s a goal to work towards. Making more is possible, especially when using leverage, but most swing traders average less over the long-term (most lose money). In a single month, or even a day, a swing trader could make more than that. But over many months, any swing trader that can average more than 5% a month is doing well.

Based on this, if you can get to the point of making 5% per month, a $600 account produces $30 in potential income for the month. A $10,000 account makes $500. A $100,000 account produces $5,000 a month. To make a higher income, you need more capital or higher returns.

As mentioned, higher returns are possible, but for an estimate, assume you will make 5% to 10% per month, or less, to determine the capital you need for swing trading in order to start producing the income you want. Make this assumption until you have proven to yourself, through actual trading, that you can make more consistently. Then adjust your expectations accordingly.

Final Word on the How Much Capital You Need to Trade Forex

Most traders never get to the point of consistently making 5% or 10% per month, even with the use of leverage. They may see these types of returns, or bigger, in the odd month, but consistency is more elusive. These returns, and bigger, are available, but only with proper money management and sound strategies.

The recommended minimum to start day trading with is $100 if you want to have any chance at building the account without risking too much and losing it quickly. But more is definitely recommended.

The recommended minimum to start swing trading with is $600. Again, this makes sure that there is enough money so that 1% or less of the capital can be risked on any single trade. Again, a bigger starting balance is recommended if you are serious about your trading.

Starting with less capital than the recommendations will likely mean taking on excessive risk. This increases the chances of becoming one of the many forex traders who deposit funds and then quickly lose it all.

If you want to grow your account and eventually build an income, you need to control risk first and foremost. This will keep you in the game long enough to continue honing your skill andreducing the number of mistakes made, to hopefully become one of the few successful traders who consistently make money year after year.

Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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