Lecture 4: Deciding How Much to Invest ?

Should you start investing ?

Yes you should. Providing that you understand a few basic principles.

1. Investing is for a longer period over at least 3 years. Trading on the other hand is for a short period. Ranging from a few hours to a few days. The skills required for trading and investing are diffrent.
2. Investing requires patience. You must have the patience to wait out till the time you have set for yourself.
3. Investing requires (for a lack of better word) courage. Don't doubt yourself. Incase of sudden volatility check back with the reasons why you invested in that particular currency. If the reasons haven't changed and the underlying fundamentals are the same there is no reason to doubt yourself.
4. Forex investing is very difficult. The best way to overcome this is knowledge. What effect will the lowering of oil prices have the currency you are investing in?

 Does it really matter if you start an account with £10 or £1000? Yes!

One of the most significant issues new traders face is being under-capitalized. Forex brokers are guilty of fostering such an environment by offering to open accounts for at little as £10 in some cases…although the minimum opening balance is usually about £100, If you want to start trading, it’s likely because you want an income stream. Well, you aren’t going to have much of an income stream if you start with $100. Since very few people are patient enough to let their account grow, they will risk way too much of their capital on each trade trying to make an income, and in the process lose everything.

The other problem with forex trading with such a small amount of money is that it offers almost no flexibility in the style of trading you undertake. If you deposit $100, and follow proper risk management protocols, you can only risk 10 pips if you take a 1 micro lot position. This forces you to be an active day trader, whether you want to day trade or not. With a 10 pip stop loss you won’t be able to swing trade or invest, since the price can easily move 10 pips against you, resulting in a losing trade, if you try to hold out for long-term gains.

New traders are better off saving up more money before opening a forex account, thus adequately funding their account so they can trade properly.

In a rule of thumb I would typically advise for short term day traders to start with at least £500 - £1,000 to provide a flexible yet effective balance margin, Whereas Swing traders I would recommend at least £3000 to provide enough room for breathing and not worrying about holding trades over a period of time chosen by the trader during operation.