There are many headlines in the media these days focusing on the forex market. Even major currencies such as the Euro or the British Pound are showing increased volatility, similar to that seen at the start of the COVID-19 pandemic.
These price movements are attributed to geopolitical tensions in Ukraine and the potential impact that could be felt over the coming weeks or months. If you’ve noticed the recent volatility in the forex market and want to profit from it through forex trading, you’re probably wondering what is the ideal deposit size to start with. The answer to this question is a bit complex, as several factors come into play.
What are the most important factors to consider?
The first step is, of course, choosing the right brokerage to work with and developing a trading strategy. Before making an initial deposit, however, you need to make sure that you consider the following three variables.
- Your current financial situation
The size of the deposit should mainly depend on how much capital you have available for trading and mainly how much money you can afford to lose. You must adopt a responsible approach, which includes taking into account the most pessimistic projections in terms of ROI (return on investment).
Trading involves probability, and if you are a newbie trader, achieving consistency may take some time. It also includes a lot of “trial and error” in the process of developing a sound trading routine.
Do the math and figure out how much of your monthly income you need for expenses. What remains could go to trade. Also, there is no shame in trading on a demo account until you are confident enough to go live. Markets are going nowhere and opportunities will continue to emerge, but you need to have the tools and techniques to take advantage of them.
A second important variable is risk tolerance. At the moment, valuations are very sensitive, mainly following the headlines coming from the Russian-Ukrainian conflict. Traders need to make decisions quickly and adjust their market exposure based on developments. This task becomes increasingly difficult if you are inexperienced and impatient.
With psychological pressure on your back, you might act irrationally and not move when the market gives you a signal. If your risk tolerance is low, start with a small account and gradually increase as your equity threshold evolves.
- The broker you would like to work with
When opening an account with a broker, keep in mind that different companies may have different deposit requirements. Most of the time, the providers have several types of accounts (such as the forex broker easyMarkets), and you will be able to open an account for a relatively low deposit. However, you must ensure that you are able to meet this requirement financially.
Overall, your personal financial situation is a key variable here, as you can see. However, your ability to make decisions under pressure, as well as the terms offered by the brokerage you choose to work with, also play an important role.