The Forex market is the most liquid market known to man to date. On a daily basis, currency exchange transactions amount to trillions of dollars. These figures may seem lucrative, but it takes skills and years of experience to swim among the big fish in this industry.
That being said, let’s go back to our million-dollar question: can you make $1,000 from $100 in a day? Well, in an ideal world, it is possible. However, this would require you to take on extremely high leverages and to enter several trades in a day, all of which come with a significant amount of risk. With this much risk, chances are you will blow your account before breakfast.
However, this is no cause to worry. With smart investing and a little patience, you can grow your hundred bucks into thousands of dollars. Here’s how.
How to start investing with $100
1. Research the Forex Market
In the forex market, it always pays to be informed. If you are a beginner, you need to familiarize yourself with the intricacies of this market. For a start, this includes knowing all the major pairs, learning how to read their price charts, and recognize patterns on them. The goal of this research is to learn how to predict price movements since this is how you make money.
To that end, there are two analysis types that every trader must know, namely fundamental and technical analysis.
This type of analysis is market research involving economic news and other geopolitical news. Typically, the relative value of a country’s currency is dependent on the state of its economy and its geopolitical situation as compared to the country whose currency it is quoted against.
There are several news releases and events that can provide insight into a country’s economic state. These include interest rate decisions by its central bank, employment data, GDP, trade balance, and inflation, among others. Understanding the impact of these news releases can help you predict the price movements that they will affect on the forex market.
This analytical method involves studying price charts for patterns that can shed light on the state of demand and supply of a currency pair. Most charting platforms provide a plethora of technical indicators which can be used to point out these patterns. With these indicators, you can identify support and resistance levels, overbought and oversold conditions, and even signs of trend reversals.
Generally, technical analysis provides you with a mathematical approach to predicting price moves. This can help you remain objective, as emotional trading usually is a step towards your downfall as a trader.
2. Try trading on a demo account
There are several brokers in the market, and the best ones will always provide their clients with a demo account. This account helps you to trade with virtual money. This way, you can exercise your skills and knowledge on the live market without risking your funds. Further, it helps you develop the discipline of dealing with profits and losses and gives you a feel of the emotions you’ll deal with in live trading.
A demo account will help you formulate a trading strategy and test whether it works by yielding profit. Additionally, if your broker supports the Meta Trader platforms, you can choose to buy forex robots to automate your trading. The advantage of these robots is some of them will trade for you; all you need to do is define your strategy and any other parameters, and they take over the rest.
3. Deposit funds and start trading
After successfully completing the demo account step, you can now deposit your $100 into your account and start trading. Even if you start with a low initial deposit, you will find that profits and losses will take a much greater emotional toll on you. Your goal is to control these emotions.
At first, you will be trading in micro-lots (0.01 units), and any profits may seem insignificant. You may be tempted to increase your leverage to multiply your profits, but this multiplies your risk too. Exercise patience and watch your account balance grow, and soon you’ll be trading in much bigger lot sizes.
For beginners, the best currency pair to trade is the EURUSD since there is abundant information that is readily available on both currencies. This is why it is the most traded pair globally.
4. Live within your means
As time goes by, you may find success, and your account balance grows. You may choose to withdraw your earnings or reinvest them. However, never invest more than you’re willing to lose. After all, you wouldn’t gamble the clothes on your back, would you? Therefore, always make sure you’re trading with amounts that you’re comfortable with, amounts that don’t make you uneasy.
Choice of broker
The broker you choose is vital to your trading journey. Our recommendation is IG, eToro, or FOREX.com. FOREX.com and eToro have a $50 minimum investment requirement, while IG has no minimum, so they’re all within your $100 budget.
Additionally, eToro offers a copy trading service, which allows you to mimic the trades of any one of millions of expert traders on the platform. This way, you can learn on the job while still enjoying professionally picked trades.
The forex market is characterized by high liquidity and high transaction volumes. It is possible to make huge amounts of money trading forex, but this entails a high risk. For this reason, managing your risk should be your top priority, even if it means enjoying minimal profits for a start. Slowly growing your account is the best way to achieve success trading forex.
Other than manual trading, you can employ forex robots or expert advisers (EAs) that automate the trading process. Alternatively, you can embrace copy trading, which is offered on brokerage platforms such as eToro.