Can you trade with 5 Dollar ?
If you're interested in trading for a while now, I'm sure you've already stumbled on advertising offers from companies or people telling you that you can start trading and quit your job the next day by just starting with $ 5, trading with 5 dollar. Especially with the advent of trading in Africa and the Internet make it difficult to have the right information.
I will break the dream of many of you with this article. If the truth interests you, keep reading, otherwise please go into trading with your $ 5.
The minimum order on the market
To answer this question, one must first understand how transactions are done on the financial market. Know that we are talking about a global market. It is not the shopkeeper in the area, or where the old woman sells gari at the central market; we are talking about the global financial market where banks, investment funds, multinationals come to exchange currencies, sell and buy very large quantities of goods. Logically, you do not think that there will be transactions as tiny and lousy as $ 5. If you think so, well my friend think again, there is none.
let's take the example of FOREX, which is the most popular and accessible market for individuals or retail traders. The smallest transaction is defined as a micro lot, which corresponds to 1,000 units of the base unit. On a parity such as Euro Dollar (EURUSD), the smallest investment that can be made is 1,000 units over EUR (EUR being the basic asset). Now it's up to me to ask, what will your $ 5 do if the minimum is the current value of the EURUSD parity multiplied by 1,000 ? You're starting to understand I guess. Let's continue then.
The lever, double-edged sword
Why some brokers then offer to open accounts to start trading with $ 5, even less for some ?
Those who have been trading for a while now would certainly ask me this question; so I anticipated.
Well dear friends, let's go "molo molo". This is possible thanks to what is called LEVERAGE. It is with this financial strategy that brokers or banks are able to allow you to trade with your $ 5. How? Will you ask me. Leverage has the effect of multiplying your capital x number of times according to the threshold defined by your broker. If a broker allows you to open an account with $ 5, your account will automatically leverage 200 times your capital. It's written 200:1. You have $ 5 but your broker vouches for you in the financial market; This allows you to place an order 200 times your capital, that is 5 x 200 = 1 000 which is (presumably) the minimum required on the market for a transaction.
Now you know how things are moving on behind the scenes. You have two advantages here:
- you can do trading with a very small sum.
- your winnings will also be multiplied by 200. Super !!! Is not it?!
Do not rejoice too quickly because if your winnings will be multiplied by 200, your losses will be too. And the funny thing is that you will never accuse a loss 200 times less than your capital. The speed of your ruin will be just multiplied by 200.
The currency pairs fluctuate a lot because the volatility is high on the FOREX. On the EURUSD pair for example, you can have more than 70 pips on a calm day. A move of only 50 pips against you will empty your 5 Dollar account. Of course, if the move is in your favor you will have doubled your capital. But in reality, the chances that you leave your job to become a full-time trader with $ 5 or enjoy trading as a source of residual income with $ 5 in capital are NIL. It's impossible. Just forget the idea.
The best trader in the world can make on average 10% to 15% per month of profit. Suppose you are one of those elite traders, tell me, will your life be better at 15% of $ 5 a month?
YES you can trade with $ 5 or even less, but do not count on it to make lot of income.
Trading is a business, it's investment. The bigger your capital, the better for you. The leverage must be used with a lot of seriousness and master of Money management . leveraging is a major cause of bankruptcy of 95% of new traders .
The capital you need to trade and live your trading is calculated personally and differs from one individual to another. We do the assessment with our learners to find with them the capital they will need to start at the end of their training.
Anyone or company that will tell you that you can change your life by trading with $ 5 or even another amount without having done a personalized evaluation with you, is certainly there to do marketing in order to sell you a product or service.
If you want to learn trading in Africa and to master all that is investment online in order to have the necessary knowledge to face the market, do not hesitate to follow our different trading courses or leave us a chat message on the chat button to the right of your screen.