Understanding FxPro minimum deposit recommendation of $1000.
Browsing my broker’s FAQ, I recently ran into puzzling advice. FXPro minimum deposit suggestion is to keep it close to at least $1000, which is about ten times higher than other Forex and CFD brokers’ minimum deposit requirement. I can’t stay aside and have some thoughts to share in this regard.
Is it time to go live?
People often get fascinated by the trading process once they try it. Demo accounts allow trying the new profession with no risks, and young ‘Soroses’ get carried away with a promising hobby. The success seems to be so near! One more trade, one more hypothesis to test, one more indicator to attach to a trading system!
Even when people get relatively positive results, they keep trading on a demo account, preferring to get lost in their illusions about what they can be making rather than making as much money as they actually can.
So many times I’ve seen trading platforms that serve the role of a PlayStation. Years of life get wasted in vain.
I know for sure what I need trading for. This is my means to make money, which is a great instrument to scale the income relatively quickly. However, it requires the nerve to fund your trading account with at least a minimum deposit of real money.
A 1000 miles path starts with the first step. A demo is an excellent instrument to practice and test hypotheses, but some real action on a real live account is required to get close to your trading activity’s real goal. No business can grow overnight. Neither do traders’ equities.
Is FxPro minimum deposit suggestion correct?
So is the number given as FXPro minimum deposit correct? Where the number $1000 comes from?
The optimal minimum deposit for Forex and CFDs trading depends on several factors:
- trader’s initial income level
- the desired income from trading activity
- the strategy a trader plans to use (i.e., number of simultaneously open positions, leverage, and risk to reward factor, expected drawdowns — all these are going to be some critical factors)
A trader that plans some long term investments and hopes to retire five years earlier with the help of these investments might want to start with an amount larger than what FxPro minimum deposit suggestion is. Daytraders with aggressive trading style might be OK with minimum deposits that are much smaller than $1000.
Planning a minimum deposit for active traders
The classics of risk management suggest keeping your risk per trade around 2%. Knowing your average per trade, the average number of trades per month, used leverage, expected drawdown, and a desired monthly income, one can calculate the necessary deposit to put your plan to action.
Let’s say you live in Europe. In this case, any CySEC regulated brokerage such (including FxPro) will give you 1:30 leverage at max for currencies trading.
Let’s say you do an average of 100 trades per month, and your risk to reward ratio is close to a recommended by the same classics 1:3. Please note that these numbers are purely hypothetical. You need to get your numbers using the means of demo trading and historical backtests. Sometimes 1:1 risk to reward is OK, and I also know traders that do fine with 1:20 R:R.
So what can you expect to get as a monthly income in case everything goes according to your plan? *evil laughter*
If you go with the FXPro minimum deposit recommendation of $1000, you should keep your risk per trade close to $20. Your take profit target will be $60 if you follow the 1:3 R:R advice. Fingers crossed, your average per trade is going to be around $15 with all the commissions included (I’m getting quite optimistic here!).
Given you make 100 trades per month, you can be making $1500 monthly. Sounds pretty good!
Other factors to consider
There are some other issues that you might want to take into account when planning your deposit. Will you have enough leverage to put your plan to action? With leverage of 1:30 that FxPro grants for European users, you will be free to make one trade at a time with a size of around 0.2 lots.
But what if you want to open more trades simultaneously? Will you be able to keep up to your standards of potential loss and profit per trade, given the limited size of your trading capital?
Please also consider that each trading system has got some expected drawdowns. Some traders think that ten losses in a row are not likely to happen. Ahahah! They simply didn’t trade long enough!
Back to risk management classics. The suggested expected trailing drawdown must be equal to a doubled backtests drawdown. So if you’ve only had five losses in a row so far, you must suggest that this is normal for your trading system to have a 10*Risk-per-trade trailing drawdown — $200 in our case. So make sure you will have enough leverage to keep trading normally even when your system experiences a significant drawdown. Otherwise, there is no point to start running your trading system at all.
Is a $100 minimum deposit enough to start trading?
I did my best to explain what you can expect of a $1000. As you see, with FXPRo minimum deposit suggestion, you can expect making some decent money in case you trade with moderate leverage and follow the rules of classic risk management in your trading.
I firmly believe that a minimum of $100 that you actually can start with most of the forex brokers, including FxPro — is too small to have a trading income any close to a satisfactory level. I know that traders often think they shouldn’t risk much with their first trading deposit, but the Zurich Axiome #1 claims that you MUST risk enough to get the potential profit close to a satisfactory level.
A trading deposit that is too small makes traders careless about losses and ruins the discipline. It makes trading activity pointless in profits and pushes traders to use excessive leverage and risks per trade.
Trading is a business, and you must have a proper business plan before you dive into this activity. Don’t risk anything above what you can afford losing, but risk enough to get a decent reward when the time comes. That’s my main point for today.
