Trading is not a get-rich-quick scheme.
If you are looking for something that will make you rich quickly, then you should NOT even think about trading.
“To become a decent trader, you need to master fundamental analysis, technical analysis, and risk management. It usually takes years.”
Also, you need to learn how to handle the psychological aspects of having painful losses... regularly.
Paul Tudor Jones, one of the most successful traders, put it simply:
“You have to be able to handle getting your butt kicked. No matter how you cut it, there are enormous emotional ups and downs involved."
Paul Tudor Jones
But here's the good news.
You don't need to be right 100% of the time when trading.
Do the best traders win 80% of their trades?
Not even close. Even a professional trading strategy may, in fact, suffer a 5-trade losing streak, or worse, at some point.
The difference between successful and unsuccessful traders is that successful ones win more on their winning trades than they lose on their losing trades.
Trading success does NOT depend on just being right more than 50% of the time. Success depends on controlling and cutting the losses quickly AND letting the profitable trades run their course.
If you follow smart money management rules, you can set up your target profits and stop-loss orders on every trade so that your potential profit is higher than the risk.
Here's an illustrative example of how experienced traders often set up their trades and risk management:
Smart traders always place a stop-loss order when opening a trade. That way, they don't risk more than they can afford to lose.
Notice that the potential reward is 2 times bigger than the maximum potential risk if the trade goes against them.
Many traders think that an ideal risk/reward ratio is 1:3. A risk/reward ratio of 1:3 means that a trader is ready to risk with $1 for the prospect of earning $3.
Seasoned traders mostly decide on and set their target profits and emergency stops before they enter a trade.
As our old friend Paul Tudor Jones (trader & hedge fund manager worth ~$7 billion) said:
"The most important rule in trading is: Play great defense, not great offense."
Some traders win on less than half their trades, but because their winning trades are 2-3 times bigger than their losing trades, they can still stay above break-even.
How much money do you need to start trading?
There are four recommended steps before starting to trade with serious money:
Learning from an educational app and books.
Practicing trading with a simulator game.
Trading in a demo account.
Opening a real account and trading with small amounts.
Let's take a closer look at these steps.
1. Learning from an educational app and books
Using an app like Forex Hero, trade view, binance education can accelerate your learning progress.
This is due to the app's engaging, science-based interactive lessons and the concise, essential takeaways from numerous books condensed into easily digestible segments.
Books are great, but it's a completely different thing to learn by testing yourself with real-life case studies as you learn.
Obviously, it's also recommended to read the best books about financial markets.
You'll find a curated selection of the best trading books in the final chapters of this school.
2. First steps with a simulator game
As you begin your trading journey, we suggest using a simulator game to practice the very basics in a 100% safe environment. This will complement your reading and learning through our app.
A good trading simulator game allows you to dip your toes in trading without risking a penny.
Unlike regular paper trading accounts, the best trading simulator games are highly beginner-friendly as their functionality is stripped down to the bare minimum so you don't get distracted and discouraged by too many technical details before learning the very basics.
Starting with a demo account of a trading broker at the very beginning can be a bit overwhelming for beginners. That's why a simulator with simplified functionality is a good first step.
In a simulator game, you'll receive $100,000 of virtual game money, and you can buy and sell forex, stocks, crypto, oil, and other assets at real-time prices.
✅ Pros: the best part about such a simulator game is that you can learn the ropes without any risk, and you are not doing it alone. Instead, you can compete against other traders in weekly leaderboards and occasionally win Amazon gift cards as a motivation booster.
❌ Cons: trading simulator games offer a simplified functionality so that it's easier to learn the basics of trading. As a result, they don't have all the advanced features like trailing stops, limit orders, etc. You'll need to eventually practice with a demo account to get used to a full-fledged trading platform.
3. Practicing in a demo account
The next step after a trading simulator game is a demo account with a real broker, where you can learn how to use an advanced trading platform still without depositing real money.
All the brokers in our Top Broker's section also provide demo accounts.
Compared with a simulator game, demo accounts are usually slightly more complicated as they have a wider set of features to suit more experienced traders.
✅ Pros: demo accounts are great for getting used to a real trading platform and testing various strategies without any risk.
❌ Cons: if you are doing great in a trading simulator, don't expect to get identical results immediately when you open a real trading account. Trading with real money involves different psychology, so your performance and actions will differ. Also, order execution in a real account is different, as demo accounts get instantaneous execution, while in real life, there can often be delays, which also influence profitability.
4. Opening a real account and trading with capital you're comfortable risking
Simulators are awesome, but after learning the basics, you should move on, as trading only with virtual money can give you a false sense of your skills.
Trading with manageable amounts of money is critical for getting the experience needed to trade meaningful amounts of money. Before risking with bigger capital, you need to trade with an amount that you can afford to lose to undergo human errors and witness the effects of brokerage costs, spread widening on post-earnings open, and price slippages that can stop you out ahead of your stop-loss order, etc.
Thus, after getting consistent results in a simulator, it is recommended to open a real account with a reputable broker and start trading with manageable stakes that won't break your bank in case it goes wrong.
Most brokers allow opening real accounts with $100 - $250.
As you progress, you can gradually increase your account and trade sizes.
But keep in mind that the average daily movements in currency pairs are around 1%-3%, so obviously, you won't make very significant gains with $100 in your account.
The optimal deposit amount depends on how much you are willing to risk. An optimal starting capital if you want to see tangible profits is usually around $500 - $1,000.
The account size threshold that separates beginner traders from more advanced ones is $25,000. The $25,000 limit is the average industry minimum for active day traders.
Most brokers don't allow more than three trades in a five-day period for accounts with less than this limit.
Reaching this $25k limit also enables traders to use the highest available leverages.
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