The reason why foreign currency exchange has reached every corner of the world so quickly is its vast opportunities that help boost the primary income of a trader. But most newcomers do not put an appropriate amount of time and effort into learning the art of buying and selling forex pairs. Due to wrong planning, most people whose forex trading career has barely taken off, end up losing a considerable amount of their initial capital. To make such a mistake, one should do proper research about how much money, time, and prior knowledge are required to stay on the safe side. In this article, we shall discuss the minimum amount for forex trading in India to help investors who are ready to enter the forex market and make the most out of it.
What is a Minimum Deposit?
We know that forex trading requires a middleman (mostly in the form of a forex broker) who helps execute the trader’s preferred order of buying/selling any particular currency pair. One must have a live trading account with these intermediary entities. To fully utilise that trading account and placing orders associated with opening/closing positions of some value, traders must have funds in their account. The minimum value of the initial amount required to start calling the shots in forex is called the minimum deposit.
Some facts regarding minimum deposit one should keep in mind are:
- Every broker has a different amount preselected as the minimum deposit. If you load your account with funds lower than the minimum deposit, it would be considered an insufficient amount of funds for trading currency pairs.
- There are also some forex brokers available in the market who do not emphasise a certain amount of funds to be stored in the trading account. These are called “no minimum deposit brokers.”
- However, first-time users should note that even though a minimum deposit is not mandated by such brokers, but it is still required to start trading.
- In some cases, a no deposit broker might even offer a welcome bonus for new sign-ups to attract new clients and jumpstart their trading experience.
Tip: The expert’s advice is to use just 1% of the account balance for trading forex. So, it is safer to have a minimum amount of $100 to use as an initial deposit to trade freely rather than $1.
Why do brokers ask for a minimum deposit?
Countless retail forex traders find it difficult to understand why some brokers ask for $100 as a minimum deposit to start trading while others need just $10 or even less. It is due to many legal and technical reasons. Experts say that brokers that require a comparatively high amount of minimum deposit, to begin with, are catering to few clients overall. Similarly, brokers that have lower minimum deposit requirements have a considerable number of active trading accounts to profit from their business model.
The amount traders pay as a minimum deposit also affects the returns they get at the end of a trade. That is because the minimum deposit is simply the amount you put into trading directly and it affects returns as well. For example, the returns you get after closing a trading position successfully by depositing $100 are going to be higher than if it was just $5.
Minimum deposit as Margin: In many cases, experienced forex traders test their luck and challenge their abilities in high-risk trading using leverage. To proceed with leveraged trading, one has to pay a margin fee to open a trading position that is considerably larger than the initial deposit amount. Leveraged trading is a highly risky trading that is not suitable for beginners. The benefit of high-leverage trading is a direct increase in profit but losses are also magnified. The minimum deposit required by top-tier forex brokers that support high-risk trading is used as a margin if a trader chooses to open a leveraged trading position.
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Advantages of trading forex with minimum amount
Though every single trader has the same goal which is to increase their profit window with each trade but reaching that point is difficult. When you have just started trading forex pairs with limited knowledge then it is imperative to hold on to your initial capital as much as you can to balance the profit and loss ratio. Starting your trade with a minimum amount offers tons of benefits to traders both new and experienced such as the following:
- Safe experimentation
Novice forex traders have a hard time finding the safest way to experiment with trading with their initial capital. Although there is an ideal option of opening and using a demo trading account with your preferred broker but it does not involve real money. This is why trading with minimum deposit works as a simulation (that is not completely virtual) with lesser risk factors.
- Increases focus
As a forex trader, you must be comfortable with multitasking without messing up your trades. During trading, a lot of information is presented in front of traders and they must pick out the one that applies to them. When you trade with a minimum deposit, you get to focus on a small number of currency pairs and trade skilfully.
- Limits losses
Countless first-timers end up blowing out all of their initial capital by trading without proper planning. The minimum deposit allows many conscious traders from making the same mistake. When you start with a small amount, it is only natural to lose less capital.
- Manages risks
Successful forex traders weigh in risk and profit before opening every single trading position no matter how big or small in value. Evaluation of risks and finding opportunities for profit guarantees a successful trade and it is easier to do when the minimum amount is involved in the process. When you put all of your capital into one prospective trade, any loss could turn out as a disaster.
- Increases experience
When it comes to forex trading, experience is everything for someone who is learning how to trade efficiently. When traders associate themselves with a low minimum deposit, they gain more experience as they go to higher levels of trading. One can easily keep a track of their profit/loss if they start with a small capital and gradually increase it.
Dos and Don’ts regarding the minimum amount for forex trading in India
- Find a reliable forex broker with minimum deposit by comparing several brokerage companies that operate legally and accept Indian clients.
- Do not put all of your money into one trading position but spread it evenly in various high-performance forex pairs to gain.
- Always remember that there is no definite minimum deposit amount that is suitable for all kinds of traders. This minimum amount solely depends on the trader’s individual goals.
- Do not choose a broker without negative balance protection if you are interested in high-risk leveraged trading.
- Forex trading account that requires a considerably low minimum amount to open is commonly called micro-accounts. These accounts are highly useful to beginner traders.
- Do not ignore the option to start a demo account to get accustomed to the trading conditions offered by any particular forex broker. Before you use actual money, it is better to practise virtually in a no-risk environment.
- Do not simply trust a broker that has the lowest minimum deposit option for its clientele because chances are it could be a scam.
It is better to enter the forex market with a relatively small amount and build confidence little by little with experience rather than investing your whole life savings and lose it in the blink of an eye.