How To Trade Forex With $100

So, you want to start trading forex and only have $100 with you? Good idea! The journey of a thousand miles begins with a single step.

Now that you’re willing to take that first step, there are a few things you need to keep in mind when trading with such a small account. Remember, 95 percent of traders end up losing their money – and the risk of burning your fingers is even higher when you’re literally trading on the edge.

Luckily, if you get certain things right, it is quite possible to double or even quadruple your returns in a few short weeks.

How To Trade Forex Profitably With $100

Let’s face it. You can’t buy much with $100 these days. A week’s worth of groceries perhaps? But when it comes to trading in the forex markets, you can easily turn that kind of money into an entirely new stream of income for your household.

All you need to do is come up with a trading plan. Long-term thinking could see your 100 bucks change your life for the better. On the other hand, short-term thinking will only expose you to a frustrating losing streak.

Granted, you don’t have to break the bank for this kind of money but, as long as you put your time and money into it, it’s important that you end up getting value for your time.

Without further ado, here’s how to start your forex trading journey with $100.

1. Understand the Market First

It’s easy to take the plunge with your 100 bucks by opening trades directly from your brokerage account right from day one. That’s because there are no restrictions. You can open as many trades as you like or as many as your account can support.

But to achieve consistent success in the long run, you'll need to first learn the ropes. Make educational resources your friend. Join forums, read eBooks, attend webinars, etc. This way, you'll get to learn a lot about market behaviors and patterns without risking money.

Most importantly, other than learning the theoretical stuff, teach yourself how to analyze market behavior. The two main ways to analyze the forex markets are technical analysis and fundamental analysis – let’s break these two down further for you.

Technical Analysis

This is the kind of analysis that uses patterns and quantitative techniques to suggest the general direction of the market. The use of Bollinger Bands, for instance, involves the use of lines drawn on charts to study market behavior in relation to standard deviation.

The use of candlestick patterns is yet another one of the techniques used in technical analysis. Some well-known candlestick patterns include hanging man, three white soldiers, dojis, engulfing candles, and hammers.

Many seasoned traders use this kind of analysis to get an idea of the direction the market is likely to take – effectively eliminating the guesswork from forex trading. Other technical analysis methods include:

• Fibonacci lines
• Reverse charting
• Stochastic oscillator
• On-balance-volume (OBV)

Fundamental Analysis

If you’re a fan of business news and current affairs, then this is likely to be your favorite method of analyzing the market. You see, all the currency pairs involved in forex are affected by all sorts of geopolitical events and economic activities.

For instance, when sanctions are imposed upon a country, its currency is likely to weaken as a result. Likewise, the central bank can adjust its monetary policy thereby influencing market behavior. And of course, news about a country's gross domestic product (GDP), for instance, can also have a bearing on the currency markets.

Fundamental analysis ensures that you take into account news and current affairs when you trade. This helps you to identify long-term trends and even short-term volatile movements.

Although most forex brokers tend to provide their subscribers with a free news feed, advanced traders know all too well that it is better to count on dedicated newsfeed sources such as:

• Benzinga Pro
• Seeking Alpha
• CNBC Pro
• Motley Fool (among others).

2. Cut Your Teeth with a Demo Account

Even after you have learned all the theory there is to learn, it's still recommended that you trade using a demo account at first. A demo account does not use real cash and yet it helps you simulate everything happening on the market in real-time.

As such, it enables you to sharpen your skills. It teaches you about self-control – an extremely important virtue in trading.

It always gives you the opportunity to test-drive your strategy in a safe environment. As a general rule of the thumb, you should trade profitably and consistently on a demo account for at least 6 months. For example, if you start your demo account at $50,000, you should aim to get it to at least $53,000 within 6 months.

If you fail to get at least a 6% net gain within that time, it is recommended to keep perfecting your skill while still in demo mode.

Avoid rushing or giving up too quickly. Learn from as many educational resources as possible. Identify and follow gurus whose trading strategies are similar to yours. Some top forex traders people often follow include: 

• George Soros
• Ezekiel Chew
• Stanley Druckenmiller (just to mention but a few).

3. Going Live, Getting Started with Real Money

You did well on your demo account and now it’s time to transition to a live account – great! One thing worth noting is that the feeling is quite different when you go live because real money is involved. You have to be mentally prepared for an emotionally draining journey and also the possibility of losing your $100.

Fortunately, there’s a lot you can do to mitigate your risk. For instance, trading with micro lots such as 0.01 lots could effectively help protect you during those early days.

The goal is to check the effectiveness of your current strategy, build confidence, and also increase your working capital.

Unfortunately, trading with micro lots will not make you wealthy overnight. But even then, you should be keen to avoid taking larger-than-necessary risks.

Stick to a sound management and investment strategy at all times. And depending on the kind of training you have; you might want to limit your trading activity to one currency pair rather than experimenting with multiple pairs.

This way, you’ll get to understand how different pairs behave under different conditions.

Slowly try new currency pairs and increase the size of your positions over time as you gain confidence. 

Note: Not all forex brokerage firms will accept $100 as starting capital. Some have pretty steep starting requirements.  But in a market that’s getting more and more liberalized, all you need is a bit of research to discover a long list of brokers willing to welcome on board. 

4. Growing Your Account

A $100 forex trading account is considered really small in the trading world. So, you’ll want to grow it over time so you can start earning substantial returns from it.

Avoid withdrawing money from your trading account during the early days. The idea is to keep plowing back the profit as you gradually build a fort around your business.

It is important to always understand that losses are part of the game. Even the best forex traders often lose some trades. What matters is that you keep learning from your mistake.

A good way to learn from your forex trading mistakes is by investing in a trading journal. Some examples of trading journals worth working with include:

• Edgewonk
• TraderSync
• TraderVue

A trading journal is basically a diary that you can use to document your trading activity. Over time, as you key-in information into the journal, you can start analyzing the data. This can help you understand yourself as a person in terms of emotions, discipline, risk appetite, etc.

5. Use Leverage to Your Advantage

When you leverage, you technically borrow capital from your broker and use it to invest. And by borrowing, you can trade large positions even with a $100 account.

What you need to know about this approach, however, is that it tends to magnify returns and potential losses as well. If used correctly, and with a good strategy, leveraging can help you double or even triple your account in a matter of weeks. But if misused, it can easily wipe out your account in a few short hours.

That is why we recommend using leverage trading as a tool of last resort and only when you have developed a consistent winning strategy with smaller lots.

Let’s say you opt to use a leverage ratio of 100:1. That means with a $100 account, you get to unlock $10,000 worth of trading power. 

However, owing to the risky nature of this approach, your broker might require you to reserve some of your cash as collateral – also known as margin requirement.

Other than leverage trading, you may try funded trading accounts. Funded account trading in forex enables you to access larger amounts of investment capital for a smaller one-off fee.