Forex trading has attracted a lot of interest over the past couple of years due to the popularity of retail investing. However, unlike trading stocks and bonds, you can get started with a small budget.
Many brokers allow you to start trading with just $100, but where do you start? Keep reading to learn how to trade Forex with $100.
Find a Reputable Online Broker with a Low Minimum Deposit
You first need to find a broker that allows you to deposit $100. Unfortunately, not all brokers will enable you to start trading with just $100. The minimum deposit varies, but many brokers require you to start with at least $500 for a standard Forex account. Luckily, several brokers accept minimum deposits of $50 or $100. In addition, brokers with lower minimum deposits often offer micro-accounts.
Micro accounts are intended for those new to Forex trading and retail investors. Setting up a micro account allows you to start Forex trading with less of an investment. However, it also comes with potential drawbacks.
A micro account includes smaller contract sizes. For example, a standard Forex lot consists of 100,000 units of currency. A micro lot contains 1000 units of currency. It is 1% of the size of a common lot.
The smaller lots typically include wider spreads, giving the broker a larger share of each trade. The spread is the difference between the sell (bid) price and the buy (ask) price. Brokers include their fees in the spread.
Yet, retail investors can still earn money and develop their Forex trading skills using a micro account. Moreover, as you can start with a smaller deposit, a micro account offers less risk.
Create a Demo Account to Practice Forex Trading
Before using your $100 for actual trades, practice Forex trading with a demo account. Most Forex brokers offer demo accounts.
A demo account allows you to make trades in real-time without risking real money. You still gain access to technical indicators and charts. You can explore the trading platform’s features and test your strategies against real market conditions.
Choose a Forex Trading Strategy
After setting up a demo account, decide on the trading strategy you want to use. One of the most important rules of successful Forex trading is maintaining a consistent strategy. Sticking to your plans minimizes the risk of making trade decisions based on emotions.
Most Forex strategies rely on technical analysis, fundamental analysis, or both. Technical analysis includes technical signals, such as current prices and trade volume. Fundamental analysis consists of reviewing the economy and global factors that influence currency prices.
The type of analysis that you make typically depends on your strategy. Many Forex traders use one or more of the following strategies:
- Price action trading
- Trend trading
- Range trading strategy
- Day trading
- Position trading
Whatever strategy you choose, decide how much money you want to risk with each trade. For example, you may choose to risk 5% of your account with each transaction. So if you start with $100, 5% of your account is $5.
Here is a quick look at how some of the most common Forex trading strategies work.
Price Action Trading
Price action trading is also called naked Forex trading. It involves looking only at technical indicators and charts instead of relying on fundamental analysis. Beginners often find this strategy easier as it does not require you to use complex indicators and signals.
Trend trading shares many features with price action trading. First, you look for trends in a currency price movement and try to ride the wave. For example, if a currency pair is trending upward, you may buy in the hopes that the trend will continue long enough to generate a profit.
Range trading involves looking for support and resistance points. Support levels help indicate when a falling price may stop and reverse course. A resistance level means when a price may reach its peak and start trending downward. Range traders often rely on the relative strength index (RSI) and other technical indicators to find entry and exit points.
The previous strategies can be used for day trading, which involves making trades that you complete in a single day. The trades may last minutes or hours. This gives you more trading opportunities but involves more technical analysis to predict minor fluctuations in the market.
The previous trading strategies are typically used for short-term and medium-term trades. Position trading works best for long-term trades. Position trading uses fundamental analysis to choose long-term trades. Position traders pay attention to the broader market and consider how currency pairs may stack up in months or years.
Determine a Budget for Forex Trading
$100 is enough to start trading with a micro account. However, a successful trade may only return $1 to $4 in profit after one to several days of trading. Many beginners make the mistake of continually depositing more money to make up for losses or limited profits.
Set a budget before you start adding more money to your Forex account. As with any risky investment, you should only use what you can afford to lose. Do not contribute money that you need for bills or other responsibilities.
You now know the basics of how to trade Forex with $100. However, you will likely need to open a micro account with $100 or less for the minimum deposit. You should also consider setting up a demo account to practice trading before making live trades.
Choose a Forex strategy and stick with it for several weeks. Then, if you are unhappy with the results, try a different strategy. When you find a strategy that works for you and consistently generates a profit in your demo account, it may be time to switch to a live account.