Forex is a leveraged market, and with access to accounts that can be traded on leverage, the forex market has attracted real interest in the retail end of the market. There are many successful forex traders and forex success stories of traders that incorporate their own unique fundamental and technical approaches in the market. However, it is important to keep in mind that the amount of capital traders have at their disposal will greatly affect their ability to make a living from trading.
Forex is one of the financial investments where the investor or trader doesn’t necessarily require too much funds to begin with. Nevertheless, even though you don’t require too much cash for you to start trading, having too little in your account actually adds to the risks of forex trading. The smaller your trading capital, the more the risk your money is at. A small account can easily be wiped clean especially when the market makes some unpredicted and unexpected movements – particularly during economic news releases.
It is vital not to lose track of the fact that the retail end of the market is going to be dominated by folks who cannot muster beyond a few thousand dollars for forex trading. The majority can only afford hundreds of dollars, and these are the people who will be squaring up with the institutional investors that have access to virtually unlimited funds for trading. The requirements in terms of trading capital that traders have at their disposal will determine the outcome of such a trading endeavor.
Brand new forex traders often start with far too much capital. You don't need to dump your entire amount into your trading account until you have a proven track record of being able to bank profit in live market conditions. Live conditions offer more challenge than demo accounts because of the additional stress and psychological factors of putting your money out there to go where it will. Until you have proven to yourself through successful trading that you can handle that stress, it is best to stick to a small account.
Traders often fail to realize that even a slight edge such as averaging a one-tick profit in the futures market, or a small average pip profit in the forex market can mean substantial percentage returns. Most traders enter the market undercapitalized, which means they take on excessive. Leverage can provide a trader with a way to participate in an otherwise high capital requirement market, and profits will come as the account grows. Making a living only requires a small edge, but the account must be large enough to provide monetary returns the trader can live off of.