How To Trade Forex With $100 – Beginner’s Guide

Can You Become a Forex Trader With Only $100?

The first question we’ll need to look at is whether you can become a trader with $100. Well, it’s certainly possible, but there are things you should consider. For one, you’ll have to find a broker that allows you to trade with $100. This is simply because many brokers require minimum deposits of more than $100.

So, why not just register with a broker where you only need $10? You certainly could, but there is often a major drawback with some of these brokers and the accounts they offer. Typically, to allow you to trade with such low amounts, they’ll often use significant leverage.

What is leverage? In simple terms, it’s when the broker loans you money to execute a trade. In turn, this then allows you to trade larger positions and, by implication, make more profit. Let’s explain with an example.

Let’s say you open a trading account and deposit $1,000. Now, let’s assume the account offers leverage of 100:1. This leverage means that the trade size is amplified by 100 times. In turn, this then means you’ll be able to effectively trade $100,000 of a specific currency pair with your $1,000 deposit.

When you execute a trade like this, you’ll then make a profit based on the $100,000 trade and not your $1,000 deposit. In other words, it amplifies your profits. This sounds great, doesn’t it? Well, it could be, but there is a significant drawback. Just like it’s able to amplify your profits, leverage can also greatly amplify your losses.

So, ideally, when you use leverage, risk management becomes even more important, and you’ll need to implement a strict trading style that includes using stop-loss orders to limit any loss you could make.

Is Trading With $100 a Good Idea?

While you won’t be able to make a living trading with $100, at least not until you grow your account significantly, it does offer one major benefit. When you trade with $100, you’ll be able to test strategies, practice proper risk management, and test the functionality of the trading platform without risking substantial amounts of money.

But can’t you do this with a demo account as well? Sure, but trading with real money also brings emotions and psychology into the equation. And this is a vital component of successful forex trading that you’ll need to learn and practice. In simple terms, with a demo account, you’ve got nothing to lose, so you won’t practice these.

How Does It Work? Real-Life Example

To show you how to trade with $100, we’ll look at a simple example. So, in contrast to our earlier example, your deposit here is 10 times lower. As a result, you’ll need to consider using substantial leverage that would enable you to execute trades. Like above, we’ll therefore once again use leverage of 1:100.

This leverage is the ideal midpoint between 1:50 which is a bit more conservative and 1:200 which is more aggressive. Anything above this leverage increases your risk too much and lower will reduce the profit you can potentially make substantially.

Now, let’s say you trade the USD/CAD currency pair. A standard lot would then be 100,000 units or worth $100,000. With your leverage, a standard lot would then require a margin of $1,000 which is still more than your deposit. So, how can you trade with your $100?

Well, the answer lies in the minimum lot sizes a broker offers. Here, some brokers offer minimum lot sizes of 0.1 lots with some even offering minimum lot sizes of 0.01 lots. These lot sizes will then enable you to trade effectively with a low deposit. For example, opening a position with a 0.01 lot size would require $1,000 or $10 with leverage.

Step 2. Open a Trading Account

When you’ve practiced enough with your demo account, you’ll move on to trading with a real trading account. Remember, when you opened your demo account, a trading account was opened automatically.

In some instances, though, you’ll want to create a new trading account. Here, you’ll click on Accounts in the sidebar and then on the Trading Accounts tab. From here, you’ll click on Create new account.

On the next screen, you’ll select MT4 as the account type, leverage of 1:100, and USD as the Account Base Currency. You can then click on Create. Just like before, on the next screen, you’ll see a summary of your trading accounts, including the one you just opened.

Step 4. Think About Your Forex Strategy

Before you start trading, you’ll need to think about the strategy you’ll want to use. And here things can get complicated, simply because there are so many strategies you can choose from depending on your goals and risk appetite.

Typically, you can use some of the following strategies:

Day trading. When day trading, you’ll open and close positions during the same day, so you’ll never keep positions open overnight. In doing so, you’ll aim to capitalize on price movements during the day. This, in turn, allows you to react to market events more flexibly compared to strategies where you’ll keep positions open for longer. For this reason, it’s one of the most popular trading strategies among traders.

Swing trading. With swing trading, you’ll keep positions open for longer than day trading and aim to capitalize on longer-term trends in the market. Typically, you’ll open a buy or sell position when a trend starts to emerge and close it when the trend reverses.

Scalping. With scalping, you’ll open and close many positions throughout the day over short periods of time. The main aim with scalping is not to make one or two large profits but rather to make many small profits that all add up. In other words, scalpers aim to capitalize on frequent, small price movements in a specific currency.

Now, you might wonder which of these are the most popular? According to our research, it appears that there is no single strategy that all traders choose. In other words, there’s no one-size-fits-all approach, and traders choose the right strategy for them depending on what they want to achieve.

So, for example, our research shows that 31% of traders prefer swing trading while 27% prefer day trading.

Strategies by the Period of Holding Open Position

No matter what strategy you choose, it’s vital that you use proper market analytics. Now, this could be in the form of fundamental analysis, technical analysis, or a combination of the two. Fundamental analysis involves monitoring macroeconomic news and react based on the news.

Conversely, technical analysis relies on considering several indicators like volatility, support and resistance, and trends to forecast what the markets will do. On this basis, you’ll then open and close trades to capitalize on volatility or trends. When you combine the two, you’ll typically use fundamental analysis as the key indicator to open a position and technical analysis to confirm the indicator.

What Strategy To Choose?

As stated before, the strategy you choose depends on your trading goals and risk appetite. Each of the trading strategies mentioned above has pros and cons you’ll need to consider.

For example, while day trading does give you more flexibility to open and close positions to capitalize on news and shorter-term trends, it does carry more risk in some instances. It also requires more active trading with more positions open at any one time, which, in turn, increases pressure and makes it more challenging to manage, especially if you’re a beginner.

Conversely, swing trading allows you to open fewer trades which makes it easier to manage these trades. Keep in mind, though, that swing trading isn’t as effective in sideways markets or markets that move within a limited range.

Another thing you should consider is that, with strategies that require more frequent trades, you’ll also pay more commissions or spreads which, ultimately, reduce your profits. This is a very important consideration, especially when you’re trading with a small account.

So, although you can choose any strategy that fits your needs, our advice is to stick to swing trading when you trade with $100. In this way, you’ll only make several trades a week which makes it easier to manage and learn more while also allowing you to save on trading costs.

Forex Strategy Example – Swing Trading

As mentioned before, your aim with swing trading is to make a profit from longer-term trends in the market. To illustrate the strategy in practice, we’ll use a simple example using the EUR/USD currency pair.

To pick up the trend, we’ll use a simple moving average crossover strategy. Here, we’ll use the 9 MA and 20 MA moving averages. These numbers simply mean that the moving averages are calculated over the mentioned periods. So, the 9 AM means that the average price is calculated over the preceding 9 periods. For a day chart, this would mean over the preceding 9 days.

In our chart below which is based on the daily chart, the 9 MA is indicated as a blue line and the 20 MA is indicated as a yellow line. For this strategy, your entry point will be when the blue line crosses from below over the yellow line which indicates a change in trend and that the trend is likely to go up.

Likewise, your exit point will be when the blue line reverses and crosses over the blue line from above. This indicates that the trend is reversing and is likely going down. When you open and close your position based on these entry and exit points, you’ll then follow the trend upwards and make a profit.

To confirm the trend, you can also use a variety of other indicators that will help you determine exactly where your entry and exit points should be.

Swing Trading Example

Can I Get Rich in Forex Trading?

You can most certainly earn a good income from forex trading. Ultimately, how much you’ll earn depends on your trading strategy, how many lots you trade, and how much leverage you use.

To illustrate this better, let’s look at a simple example. Let’s say you deposit $500 in a trading account, you trade 50 lots of the EUR/USD pair, and you use a leverage of 1:100. Under these circumstances, you’ll typically be able to earn between $150 and $750 per day.

Now that sounds amazing, doesn’t it? Keep in mind, though, that the potential income above is based on an extremely risky strategy with high leverage, which increases the risk exponentially.

More realistically, if you use moderate leverage, keep your trade sizes appropriate, and diversify your risks, you’ll be able to earn about 12.3% per year when using the same $500 as above.

How to Make Money in Forex Without Actually Trading?

Now that we have identified the advantages of getting started with $100 let’s dive into the alternative ways of making money in Forex without actively trading.