Forex trading involves speculating on exchange rates increase or decrease for profit. The profit is measured in pips (percentage) and is, therefore, relative to several factors. One of the significant factors determining gain is capital. Others may include leverage, trading strategies, risk management, etc.
Brokers are now in the habit of offering low minimum deposit accounts. These accounts allow you to trade the forex market on a low budget. Although if you expect big returns, you need to invest considerable capital. But never support above your disposable income.
Is it possible to make money trading with $100? Yes. Though transactions worth billions of dollars occur constantly, many skilled traders make considerable profits with low minimum deposits. The famous Chinese trader, Chen Linkuy, is an example. He made a $100000 profit within a few weeks of trading with $100.
It takes the careful application of effective trading strategies to earn money with a low minimum deposit. Below, we suggest some tips and strategies for trading with a $100 minimum deposit.
Trade the suitable market
Brokers offer different account types with varied features. Usually, lower minimum deposit accounts may not give access to all the broker’s product ranges. But the most liquid forex pairs will be accessible. EURUSD is the most popular and liquid currency pair. There are others. These markets offer more opportunities, and if you trade at the right time, you can keep all your profits and avoid paying spreads. If trading with a low minimum deposit, you do not have the luxury of choosing any market. Only the most highly liquid assets will benefit you.
Risk and money management
Skilled traders use a 2% rule when trading in a large or small account. This rule states never put more than 2% of your capital in one trade. That means for a $100 capital, each position you open should not be more than $2. You can choose to open various positions to maximize your chances. Risk measures also involve strictly using stop-loss orders while trading.
Many brokers offer leverage up to 500:1. Every position you open with $2 gives you access to trade with $2 × 500. Leverage trading is risky. It takes skills and mastering an effective strategy to use it successfully. If you can, you can make good money by trading small accounts on leverage. Ensure you check with the legalities in your jurisdiction before using leverage. It is illegal to trade above 30:1 in many EU countries.
Forex scalping involves leaving positions open for a concise period. A successful scalping strategy uses technical indicators, such as Exponential Moving Average (EMA). The one-minute scalping strategy is a popular one that combines three EMA technical indicators. The first and second should be a 50-day EMA. The third should be a 100-day one. The goal is to determine the market condition (bull or bear) before placing trades.
If the current exchange rate is higher than the EMA you arrived at, it may indicate a bullish (uptrend) market. Another indication of a bullish or bearish condition is the position of the 50-day and 100-day EMA lines. This might signal an uptrend if the 50-day line has moved above the 100-day EMA. But if it has crossed and rolled beneath the 100-day line, the market might be in a downtrend condition.
Combining the EMA with the Stochastic Oscillator is best to confirm the trend. This indicator measures the trend using numbers that moves between 0 to 100. If the Stochastic oscillator measurement shows 20 or less, the exchange rate has dropped too low and may soon rise. However, the upward price movement might be short-term. If it shows 80 or higher, it indicates an uptrend in which the price has swung too high. A correction or price drop might be in sight.
The scalping strategy allows you to place many trades per day. If used effectively, you can make good profits each day. You also get to dodge any swap fees. However, if you trade with a high spreads/commission broker, you could keep only half your earnings or less. Each trade carries its fees. One other disadvantage of this strategy is the attention it requires. You would have to stay focused on your screen while positions are open, which can be exhausting.
Additionally, there is the risk of over-trading. Once you spot a good opportunity, you might be tempted to keep opening and closing positions. You need to set a strict trading plan from the onset. This enables you to control your excitement and other emotions while trading.
Breakout trading is another common strategy to profit from small forex accounts. Breakouts can occur in any market condition at different times. Both long-term and short-term traders can find these opportunities.
This strategy involves placing a trade at the point where the price breaks and riding that trend till it ends. Price breaks can occur at support levels, resistance, forex pivot points, Fibonacci, etc.
If the price breaks past the resistance point in a bullish market, traders expect the exchange rate to climb higher. That means the market will continue its bullish move. The breakout is an opportunity to join the trend or profit from the short-term price drop.
In a downtrend market, the price can breach the support zone. A true breakout indicates that the momentum will grow stronger. If the price breaches support in this market condition, it is an opportunity to profit from further price drops.
These points are great entry zones for opening trades. The trader should then place the stop-loss orders near the former resistance or support levels.
The downside of this strategy is that breakouts are not always true. If it turns out that the breakout is a false one, the traders lose. For this reason, strict risk management is essential when trading breakouts.
Generally, making money in forex trading is not easy. Mastering the market takes patience and commitment. It is possible to trade with $100 and make money. But you must remember these important points:
- Use a good competitive broker
- Learn how and use leverage effectively
- Master effective strategies
- Trade highly liquid pairs