How much should you invest with an online broker? It depends on your situation and trading level, find out what you should know to make an informed decision.
How Much Can You Afford to Lose?
Today, you can open your first binary options account with as little as 100-250$ (or even lower in some cases). If you lose it all, you’ve only lost a couple hundred. Sure, it might sound safe to make a low deposit but think about it though, you are not trading to lose money but to make money. If you can’t afford to lose your investment then maybe you should focus on paying your bills first. So make sure to only deposit your extra cash – not your life savings. Online trading is not a way to try and pay a bill you are behind on. Trying to win the grocery money by betting the rent is a sure way to end poorer.
Does Size Really Matter?
There are two ways of beginning your live trading experience: one would be to deposit right from the start the full amount you want to invest and the other is to start small, with a $300 – $500 account… to “test the waters” if you know what I mean. Obviously, if you just want to test the broker, you don’t need to make a huge investment. Just deposit as little as possible to test them first! As soon as you are sure they are okay you can proceed with depositing a bigger sum but don’t trade without a reliable and easy to use strategy.
Although turning a small deposit into substantial profit is possible, the road is much harder and several things must be taken into consideration. If you respect traditional money management techniques and limit your risk per trade to 2% – 5% of your entire trading account, your profit per trade will be almost insignificant which can frustrate some traders and actually I can agree with them. After all, it’s annoying to see trade after trade finishing In the Money but your pockets remaining almost as empty as they were when you started trading. On the other hand, if you choose to throw money management out the window and trade big with a 300 bucks account, you will probably get burnt faster than you can say “Hope I don’t get burnt”.
Either way, a small deposit doesn’t allow room for mistakes without taking away some of the profit potentials and if you choose to start small, you should master a few conservative strategies which are easy to understand and profitable if used correctly. Of course, the strategy should fit your own personality but here are some suggestions: Simple Balanced System, (a strategy which uses Stochastic and RSI, two of the most respected technical indicators) or Best MACD Entries Strategy. But no matter your size account, don’t use something like the 60 Seconds Profit Strategy and if you click on the link, promise me you’ll do it just for some fun reading and you’re not actually thinking about trading it. Bottom line is that a small deposit will limit you in more than one way.
However, a small $300 – $500 account is good in some aspects. For example, it can help you test your broker’s reliability, professionalism and especially the withdrawal procedure. Try withdrawing profits made with a $500 account and if the request takes longer than it should, maybe it’s a good idea to choose another broker if you want to deposit a bigger amount. Also, if you are not confident enough in your trading skills, a low deposit is probably better suited for you because it’s a good way to learn the intricacies of the market without suffering a big blow to your capital. You can master your discipline and manage the emotional side better than you can do it with a demo account because no matter what anybody tells you, everything changes when your money is on the line and a demo account cannot give you a true representation of all the implications of trading. For these reasons, a $300 – $500 trading account has benefits that cannot be denied.
Deposit Size And Risk Tolerance?
Once you’ve confirmed the broker is OK and you’ve completed your training, it’s time to begin trading. One of the first things to do is assess your risk tolerance and how much you are willing to lose. Some think that risk is the size of your account but does starting with the minimum initial deposit mean you aren’t taking a big risk? Well, this answer really depends on your money-management and the minimum allowed investment with the broker. Let me demonstrate with an example:
А. Minimum Deposit 1000$ – Minimum Investment/Trade 50$
B. Minimum Deposit 200$ – Minimum Investment/Trade 20$
In the example above, which account type is taking the biggest risk? Obviously the trader with the smaller account is taking a huge risk. The 200$ account can only take 10 losses in a row (20$) before it’s completely wiped out! That’s a 10% risk profile. The 1000$ account on the other hand, even though the min trade is 250% bigger(!), can withstand 20 losing trades (20×50$) for a risk profile of 5%, much lower. What we learn from this example is that we need to take into consideration the minimum investment amount as well as the minimum deposit before funding an account.
So does a low deposit mean lower risk in your account? This is a valid question. What does it mean when you choose to make a low deposit or the minimum deposit and how does that affect risk in your account? At face value, I would have to say that yes, using a low deposit does mean that there is less risk in your account, but it’s relative to how you trade. Think about it like this, a trader with an account of $10,000 has much more potential risk in their account than someone making the minimum deposit because there is the possibility of losing $10,000 versus only $200. But does this truly mean there is less risk in the smaller account, not really. It all comes down to the individual traders and how they approach the market.
How Do You View Your Account?
The best thing I can recommend is to stop thinking about your account in terms of dollar value. It doesn’t matter if your account is $200 or $20,0000, you should be thinking about your account in terms of percent. No matter what your balance is, it is always 100% of your balance. Using this perspective risk can be quantified in a way that is easy to manage. Most successful traders will only risk losing a small percentage of their account on any one trade. This is known as money management and position sizing. The typical trader will only risk in the range of 1-5% on any trade which means that anyone losing trade can only lose 1%, 2% or 3% of the total account. Now let’s look back at the example above. One trader has an account worth $10,000 and one trader has an account worth $200. The trader with the smaller account is making the minimum trade of $5, or 2.5%, on each trade. The other trader, the one with the $10,000 account, is trading positions haphazardly. First, one trade is $500, the next is $1,000 and then to try to recoup losses another is made for $3,000 or 30% of the value of the account. You tell me who’s account is carrying more risk.
Even with a good money management system you still have to ask yourself one question. Can you afford to lose $200? If you can’t then depositing any amount is risky. Trading FX, CFD or binary is not a game even though some brokers might make you think so. This is real money and trading is hard. I don’t care what the ads tell you, it is unlikely that you are going to parlay a $200 minimum deposit into thousands of dollars in only a few days. If you can’t pay the rent, if you can’t buy groceries or gas for your car then even a $50 deposit is too risky for you.
What Is The Minimum Deposit You Should Make?
Using the minimum deposit definitely does not mean that you have a lower risk. It all comes down to if you can afford the minimum and how you trade. You may not have the money, in that case, even the minimum is too risky. You may have plenty of money but no discipline, another risky scenario. However, you may have the money to spare and the discipline to trade. In that case, taking some risk is a good thing. You have to take risks in order to make money. The key is knowing what is a good risk and what is a bad risk.
So, what is the minimum deposit you should make? What you can afford. If you can not afford to lose the money in the first place you should definitely not spend it trading online. You wouldn’t spend your rent money going to the casino, would you? If you only have $200 that you can truly use that’s OK. There are brokers that can accommodate you. You just need to figure out what your money management is going to be, determine your trading rules, develop a strategy and then stick to it. It will surprise you how quickly $200 can turn into $2,000, and that $2,000 into $20,000. It will take time and dedication but it can be done.
It all comes down to two things; how much the minimum investment amount is and how much you can actually afford to lose. Trading is risky and we want leverage but with leverage comes risk. Being able to withstand many losses means you’ll have a chance to learn from your many mistakes and losing trades and trust me there will be mistakes and losing trades. You can’t make millions overnight with only 200 dollars but with the right risk management, education and time, it can be done. Remember though, that no matter how large you decide to invest, you need to test the broker with a small deposit first!
Bottom Line – Staff Recommendation
Important: Match your education level with the risk you can take.
Primary School Level
Minimum Deposit, no former Trading Education: $200 – $400
Average Deposit, no former trading education: $400-$800
Average Deposit, some trading education: $800-$1000
Going Higher, some trading education and practice: $1000-$2500
Deep Water, very good trading education and practice: $2500 – $10,000
Feels like a shark, very good trading education and practice: $10,000-$30,000
ThatSucks.com do NOT recommend to invest more than you afford to lose for the first deposit, no matter what education in trading individual posses.