Forex trading isn’t the most accessible thing you can get into without a lot of capital. Depending on many factors like what you’re looking to trade, it’s a little too much to expect enormous gains right off the bat. Experienced traders will tell you that sometimes you have to lose money to make money – and everything about forex trading follows that philosophy.
Practice trading with a demo account
That being said, forex trading with a small sum is possible, but only under certain situations. There’s a way to be successful if you want to start forex trading with only $100 in your live account. Here’s how to do it and what’s most likely to happen to that money.
Can you open a forex trading account with only $100?
Absolutely! In fact, you can even open a demo account without putting any real money into it. A demo account is a necessary step for beginners since it’s an account that reflects real-time market conditions but doesn’t require any funding for you to access it.
Most forex traders will advise that you open a demo account first before getting yourself a live one to develop your skills in analysing the market. After you’ve gained a little more experience and developed your own trading plan, then you can start looking into getting a live account of your own.
There are four kinds of Forex accounts that you can pick from, with varying numbers of units that you’re allowed to trade.
- Standard: 100,000
- Mini: 10,000
- Micro: 1,000
- Nano: 100
These units don’t necessarily correspond to the amount of money you’re going to put in your live account since there are units worth less than a dollar. The purpose of these divisions is to prevent nano, micro, and mini traders from suddenly moving standard lots without warning. If you’re parting with $100, then you’re looking at a nano live forex account to start trading with.
What happens when you start with $100 in your forex account?
Let’s say you took the plunge and opened with a $100 live account, and are looking to trade against the Euro. Here are a few probable scenarios of what may happen:
- Deposit and precalculations
You deposit the $100 into a live account, calculating everything from your required margin, used margin, free margin, margin level, and total equity. Right off the bat, there are many numbers that you need to keep track of. This is where analysis tools like a technical analysis software can come in handy.
- The market moves
After a day, the EUR/USD moves a few pips up. That means the amount of money you need to keep your position open in forex trading has risen since your account is denominated in US Dollars. Moving a few pips up means that the EUR is performing better, so you need to recalculate everything you did in step one. But because you’re trading in US Dollars, that means it costs you MORE to trade with the EUR.
- Recalculation and margin calls
It’s already not looking good. Considering that you don’t have a standard account to trade with, you’ll receive your margin call, which is basically a warning that your position in the trade is precarious. You won’t lose your position yet, but you can’t get anything else until your margin call goes above 100% again. You’re locked out of getting any more trades until your specific trade improves in your favour.
- The market moves again.
Let’s say that the EUR shows another strong showing the next day. After doing another round of calculating your margin levels, your margin level is now at 20%. At this point, your trades will call in a stop out, and your investments will be closed at market price. Since your currency performed poorer than the one you’re trading with, you get an overall net loss.
While a standard account may have been able to tolerate the market moving a few pips in either direction, the danger with using a micro or nano trading account is that the smallest shifts can vastly impact your standing.
Even if you start with a strong position — after all, the US Dollar is one of the world’s best safe-haven currencies — because of the small number of units that you have access to trade, even a pip change of 80 is enough to put a sizable dent in your investment.
So, what does all of this mean?
Should you open a forex trading account with only $100?
To be perfectly honest, no. Not really.
If you’re looking to make a significant investment with great returns, $100 won’t be enough to get the money you’re looking for. If you want to get into serious forex trading to the point where you’ll generate a lot of revenue, you’ll need to show up with more capital.
However, there is one scenario where you should absolutely open a forex trading account with $100: if you want to do your research as to how the market moves in an area, you’d like to trade with. If you’re big on fundamental analysis, a micro or nano account can give you a lot of data to work with when you actually get your real trades in.