That said, some people may wonder, “How much can I start with?” Or “Isn’t it possible to start with a small amount and reduce profits?”
In this blog, I will explain why it is better to start Forex trading from a small amount, the advantages and disadvantages of leverage, how to choose a Forex company, recommended companies and so on.
Forex account India can be started from a small amount,
In addition to being able to trade from a small amount, Forex has the feature that the amount adjustment is flexible.
Many people may think that you need a lot of money to invest, but you can do Forex trading even from a small amount.
First, I will explain two reasons why you can do Forex trading even from a small amount.
Utilizing a mechanism called leverage
The first is that FX has a mechanism called “leverage”. Forex allows you to trade many times the amount of foreign currency on hand as collateral.
Leverage is a term that refers to the “leverage” of the principle of leverage. Since you can move a large object with such a small force, you can make a large number of transactions with a small number of funds, which is called the “leverage effect”.
Leverage up to 25 times is available in India. By utilizing this mechanism, it is possible to trade as long as you have 1/25 of the investment amount.
Forex companies with small currency units are increasing
The currency unit is the minimum trading unit set for each Forex company.
For example, when trading dollars/INR, a company whose currency unit is 10,000 can only trade from 10,000 dollars.
In the past, it was common for Forex companies to use 10,000 as the smallest trading currency unit.
However, nowadays, forex companies that support 1,000 or 100, and at least one currency have appeared, and it has become possible to trade forex even with a small amount.
Why beginners should start with a small amount
There are several benefits to trading Forex for a small amount. Let’s take a look at three of the most beneficial items for beginners.
Become a risk hedge
Trading for a small amount is a risk hedge. Forex is an investment and you should always consider risk.
For example, assuming that you are buying 10,000 currencies of US dollar/INR, the rate will move due to the weakening of the dollar and the INR’s appreciation, and if the market price goes backwards by 1 INR, it will be minus 10,000 INR. However, if it is 1,000 currencies, the minus amount will be 1,000 INR.
Trading with a small amount does not mean that the profit is large, but the amount of loss is also small. It is important to trade at an amount that is commensurate with the risk you can tolerate.
It is possible to have a psychological margin
By starting a transaction for a small amount, you can have a psychological margin for loss.
It is difficult to make a calm judgment when a large loss occurs even if the market moves a little.
In Forex trading, there are many cases where unrealized profits are generated and profits are fixed before reaching the original profit target, and in fact, profits that would have been obtained more than that are missed.
You may also miss the timing of loss cuts because you don’t want to fix the loss. Especially when trading high-value transactions such as 10,000 currencies, this tendency to avoid losses becomes apparent. As a result, you may not be able to achieve your original goals.
However, if you trade a small amount of money, you will have a psychological margin, so it will be easier to operate according to your profit target.
Can gain practical experience
To obtain stable profits with Forex, it is important to increase “experience points”.
There are demo trades and verification tools that allow you to gain experience without actually spending money, but there will still be some differences from real trading.
By actually moving your own money, you will increase your interest in Forex. In particular, the psychological state and behavioural tendencies when making a profit can only be obtained in practice.
That’s why “small deals” that allow you to gain hands-on experience while controlling risk are beneficial for beginners.
What are the advantages and disadvantages of leverage?
The leverage mentioned above has both advantages and disadvantages. Let’s look at each one.
Benefits of leverage in Forex
The advantage of leverage is that you can trade for more money than you have. Leverage can make a big profit even with a small amount of money.
For example, let’s look at the difference in profit when trading for 10,000 INR. If you want to trade without leverage, suppose you buy 100 dollars for 10,000 INR and sell it for 101 INR, assuming that 1 dollar is 100 INR.
In this case, you have made a profit of 100 INR for 1 INRx 100 dollars. On the other hand, if you multiply the leverage by 10 times, you can buy up to $ 1,000, or 100,000 INR, even if you only have 10,000 INR at hand.
If you buy 1,000 dollars at the same rate as before and sell it for 101 INR, you can get a profit of 1,000 INR for 1 INR x 1,000 dollars with 10 times leverage.
In this way, with Forex, even with the same funds, you can get greater profits depending on how you leverage.
Disadvantages of FX leverage
Leverage, of course, has its disadvantages. The benefits of leverage can be the same, depending on the situation.
While you can expect great profits by applying leverage, the loss will also increase by the amount of leverage.
The biggest disadvantage is that there is a possibility that your funds will be negative by applying leverage.
How to choose a Forex company
To make a profit with Forex, it will be a condition to choose a Forex company that can operate it that suits you. Therefore, I will explain the “how to choose” forex companies.
Checking different spreads for each Forex company
Be sure to check the spreads that are different for each Forex company. In stock trading, the price is the same regardless of which securities company you buy, as long as the timing is the same.
On the other hand, the exchange rate differs depending on each Forex company. The rate at the time of purchasing foreign currency is called the “Ask rate”, the rate at the time of selling foreign currency is called the “bid rate”, and the difference between these two rates is called the “spread”.
The smaller this spread, the easier it is to make a profit.
A swap point is the interest rate differential between two currencies. In Forex, by selling the currency of a country with a low-interest rate and purchasing the currency of a country with a high-interest rate, you can receive the “interest rate difference” there as a swap point.
Conversely, if you buy a low-interest-rate currency and sell a high-interest-rate currency, you will pay the “interest rate difference”.
One criterion would be to choose a Forex company with high swaps received and few swaps paid.
Train for a small amount before you start trading with Forex account India
If you start Forex trading, start with a small amount to mitigate the risk.
As explained in the blog, in Forex, it is possible to make a big profit with a small amount of money by using leverage. However, there is a possibility of suffering a large loss due to the leverage.
Many people may want to increase their funds as soon as possible. That said, taking the risk of being overwhelmed can put you in a situation where you can’t make the right decisions.
First of all, choosing a Forex company that can trade from a small amount and accumulating experience is the best way to get solid results.
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