“By failing to prepare, you are preparing to fail” – Benjamin Franklin
The above quote is highly suitable for beginner forex traders because most beginners start forex trading without any preparation, and lose all their money.
Research on 31 brokers’ data (including eToro, IG) has shown that 77% of traders lose their money in forex trading.
The first step to becoming a successful forex trader is to learn how to reduce money loss during trading. Once you are an expert in avoiding losses, you can improve your overall winning ratio in bigger trades.
Your winning trades are like earning revenue in a business, and your lost trades are equivalent to the business expenses or losses.
Profit = Earning revenue – Expenses or Losses
Now when you are losing less and winning more, ultimately you are earning profit from forex trading.
Two major ways to reduce risk in the beginning are –
- Starting small like trade forex with $100
- Using risk management techniques
If you are searching for “how to trade forex with $100” that means you are focusing on avoiding bigger money loss and this article is for you. Without any further ado, let’s start.
How to Trade Forex with $100 in 3 Easy Steps
#1. Open Forex Account that Offers Nano Slots
Most forex brokers offer standard lot sizes (equivalent to 100,000 units) that could lead to losing all your money in one go.
To avoid this, search for a forex broker like Oanda, that offers you –
- Zero balance trading account or minimum balance should not be more than $100
- Nano lot size
Before digging deep into nano lot and how it would be helpful to you in avoiding money loss, let’s first understand what lot size is in the forex trade.
I. Lot Size
A lot size denotes the number of currency units you buy in one transaction.
- 1 standard lot – 100,000 units of currency
- 1 Mini lot – 10,000 units of currency
- 1 micro lot – 1,000 units of currency
- 1 nano lot – 100 units of currency
That means if you trade in the standard lot, you will have to buy 100,000 currency units at one time.
For example, If the present EUR/USD exchange rate is $1.3000, one standard lot of the base currency (EUR) would be 130,000 units. That means you have to buy 100,000 units of EUR in each transaction by paying 130,000 units of USD.
On the other hand, if you trade in nano-lot, you can place a EUR/USD order by spending 130 units of USD to buy 100 units of EUR. If you are trading with $100, you would be able to buy 77 units of EUR.
Now, you can understand that nano lot trade has small money involvement that leads to smaller losses making it highly suitable to beginners.
II. Margin Leverage
Margin leverage is the amount of money your broker lends you to trade against the deposited money in the trading account.
If your broker offers 1:00 margin leverage, now depositing $100 will allow you to trade up to $10,000 which means you can trade at 100x of your available money.
Taking the above example again, if you trade EUR/USD with 1:100 leverage you can buy 7700 units of EUR that could enhance your chances of high profits.
But if you lose the trade, you’ll have to pay back the balance amount to the trade which could be around $9900.
So you should be advised not to use the leverage in the initial days and focus on basics.
After knowing the lot size & margin, let’s understand another important term that is the pip value in the nano lot.
III. Pip value
Since price movement is measured by pip value, profit and loss also depend on the change in pips.
A pip is the minimum price movement within a currency pair.
1 pip is equal to 0.0001
The pip value can also vary depending on the lot size offered by your broker.
In a standard lot of $100,000, each pip has a value of $10.
- 1 pip = $1 (in mini lot)
- 1 pip = 10 cents (in micro lot)
- 1 pip = 1 cent (in nano lot)
In terms of profit and loss, if you are trading in a standard lot a 1 pip loss would cost you $10 and a 100 pip loss would massively hit you with a $1000 loss.
But in nano lot, since the price of 100 pip is equal to $1, a loss of 100 pips would cost you only $1 making trading in nano lots much safer for a beginner.
Also read – Best forex brokers in India
#2. Limit Your Expectations
Avoid unrealistic expectations around your trades. If you are starting small with $100, don’t think of making million dollars with $100.
Unrealistic expectations could be heartbroken because they rarely turn into reality, and sooner you start feeling disappointed and frustrated when things don’t work the way you expected them to.
Think practically.
Your prime focus should be on learning how to trade without losing much. Your wins would also be small but if you are not losing a big pie of your capital, that means you are building a strong foundation of your bigger wins, by master on how to avoid bigger losses.
Initially, you can target a 4% profit if you are taking a risk of 2%, which means if you lose trade money loss would be 2% of your trading capital but if you get the success you would earn 4% (2x of risk) of your trading capital.
Why 4%?
Because there’s a possibility that expecting more gains (like 10% or 15%) may lead to not reaching the desired goal at all which would be frustrating. So smaller wins would help you move forward and build confidence.
And learning how to reduce loss percentage is more important than earning high profits, which you can understand by using different strategies that come under risk management, which you’ll learn in the next section.
#3. Learn Risk Management
Risk management strategies guide you on how to reduce your risk per trade so that you don’t wipe out all of your capital in the trades.
I am going to share with you two easy risk management techniques that would help you save money if the trade goes against you.
I. Set Stop loss at 2% (for nano accounts)
You should start forex trading by setting your stop loss at 2%. That would help you fix your loss at 2% of your available trading capital.
For example, if you trade with $100, the maximum loss at 2% would be $2 only.
Let’s understand by looking at the chart below –
Now if you are trading $100 with nano lots, you are limiting your loss to 200 pips which is $2 or 2% of your trading capital.
As you can see, if you enter the market at 1.13000 and set a stop loss 200 pips down at 1.12800.
If you lose the trade, that would cost you just $2. Now you can execute 50 trades with $100 in your account.
You can also use margin for bigger trades but avoid that in the initial days.
Because if you use a margin of 1:100, you’ll lose $200 at a 2% loss and if you use a 1:10 margin, the loss would be $20. So avoid in the beginning and focus on how to avoid loss in the forex trading with stop loss.
This way you learn to minimize your risks which is essential before trading big amounts of money.
II. Manage Your Trading Time Frames (for a standard account)
The timeframe is the unit of the time period in which a trade executes. It could be as low as 5 seconds and as high as 1 month.
The lower the timeframe, the higher the volatility.
So the ideal timeframe for a beginner is the daily timeframe and if you are going to trade in lower time frames, it shouldn’t be less than 30 minutes because price fluctuation is very high as we lower the timeframe.
If you have a broker that doesn’t offer nano lots and you don’t want to change the broker, then start trading with lower timeframes like 1 hour or 30 minutes and keep the stop loss at 100 pips.
Or trade at a daily timeframe and reduce the stop loss to 50 pips.
For example, suppose the smallest lot that your broker offers is a micro lot (most brokers offer that), and you are trading in a daily timeframe.
Now if you set a stop loss in lower timeframes (or even keeping a daily timeframe) around 50 pips, your overall loss would be reduced to $5 in the micro lot which is still better than losing all your money in one trade.
The only risk in lower timeframes is if there’s a sudden fluctuation in the market due to any important news, then high volatility may lead you to quickly lose the trade because you won’t be giving enough space & time for your trade to execute.
You can see in the above snapshot, using the same EUR/USD example, 50 pips stop loss has very little room as compared to 200 pips. In that case, keeping 100 pips would be an appropriate timeframe to give enough space to your trade and keep risk reduced to $10.
Check out – Best personal finance books for beginners
Conclusion
Now you have learned two important risk management techniques with a nano lot trading account or with a standard forex trading account.
Prefer to open with a broker which offers nano lots, start your demo account, and after some practice, you can live trade forex with $100 capital without any hassle.
