Day trading became a social media sensation in 2021, when young investors took to Reddit, WhatsApp and other platforms hoping to get rich quick on speculative meme stocks like GameStop and AMC. While the craze has largely died down, many of those traders are still trading, and a new generation is itching to get started. But can you day trade stocks with just $100? No — but there is another option.
What Is Day Trading?
The Financial Industry Regulatory Authority defines day trading as an investing strategy that entails buying and selling the same stock on the same day to profit from movements in the security’s price. The trades must be executed from a margin account, which uses funds on loan from the broker, with the account serving as collateral.
Federal law requires “pattern” day traders — those who place four or more securities trades, representing more than 6% of their portfolio, within five days — to keep a minimum of $25,000 in a margin account to get started. The law’s intent is to provide a cushion against the loss of leveraged funds. However, if you don’t have your heart set on trading securities, there’s another type of day trading you can start with a cash account and $100.
Forex, or foreign exchange, is a global market for foreign currency exchange. Investors trade standardized currency pairs, such as the euro and the U.S. dollar, which is expressed as EUR/USD. The first currency in the pair — EUR, in this example — is the base currency. The second currency listed, USD, is the quote currency.
As noted by Forbes Advisor, the exchange rate represents how much base currency you need to buy one unit of the quote currency. If the exchange rate is 1.1, you need $1.10 (1.1 USD) to buy one unit of EUR. Because you trade pairs, you buy the EUR at the same time you sell the USD.
Whether you buy or sell a pair depends on how you expect the currency values to change in relation to one another.
If you think the base currency will appreciate more than the quote currency, which happens when the exchange rate increases, you open a long position by purchasing the pair. If you think the base currency will depreciate more than the quote currency, which happens when the exchange rate decreases, you open a short position by selling the pair. You make money when you’ve speculated correctly.
Is $100 Enough for Forex Day Trading?
Many brokers allow investors to open an account with $100, so technically, yes. Fees will eat into that, further limiting how many trades you can make and reducing the number of trades it takes to lose all your money — and you will lose money more often than not in the beginning. However, it’ll also limit your losses as you learn.
How To Start Forex Day Trading
Forex trading is complicated and highly speculative — i.e., risky. But if you have $100 you can afford to lose and want to give it a try, these tips will get you started.
1. Select a Broker
You’ll have no shortage of forex brokers to choose from, but it’s important that you use one that is subject to regulation. In the U.S., currency trading falls under the supervision of the National Futures Association, under the auspices of the Commodity Futures Trading Commission. The NFA maintains a database called Basic that you can use to do background research on any broker you’re considering using for your forex trades.
2. Open a Demo Account
Save your money for now and open a demo account with your choice of broker. As you learn how to analyze the market, research currency pairs and devise trading strategies, you’ll want to put your newfound knowledge to work. It’s better to do that with $100,000 in play money than $100 in real cash.
3. Decide How You’ll Manage Risk
Risk management aims to limit how much you can lose on any given position, and you should have a sense of how you’re going to do that before you start trading for real. Stop loss is one common strategy. It automatically closes your position when your losses reach a predetermined amount, literally stopping the loss.
4. Fund Your Account and Start Trading Real Currency
Once you’ve gotten a feel for which strategies work and which don’t, you can fund your brokerage account with $100 and start trading for real. Benzinga recommends keeping a trading journal, listing all your trades, the strategies you used for each, why you used them and how they worked out. This will help you learn from your mistakes as well as your successes.
How To Make Money With Forex Day Trading
Forex day traders can take one of two positions: long or short.
The exchange rates move in units called points in price, or pips, which means pips are the smallest possible units of movement. While there are exceptions, a pip is 1/100 of a percent, expressed as a decimal: 0.0001.
With a long position, you buy the pair and wait for the exchange rate to increase before selling. If the exchange rate is higher when you sell the pair than it was when you bought it, you make money.
With a short position, you speculate that the base currency will decrease in value compared to the quote currency, making it less expensive to purchase the base currency using the quote currency. For example, if EUR’s pip were to decrease from 1.0000 to 0.5000 while the USD held at 1.999, you could buy twice as much EUR. If the exchange rate is lower when you close the position, you’ll make money.
What One Trader Wishes He Knew When He Started Trading Forex
Forex trading instructor Rob Pasche shared his experience on DailyFX, a forex news and research website from IG. While he started with $10,000, the lessons he learned are just as applicable to a new investor gearing up to trade with their first $100.
- Forex trading is not a get-rich-quick scheme. “The amount we can earn is determined more by the amount of money we are risking rather than how good our strategy is. The old saying ‘It takes money to make money’ is an accurate one, forex trading included,” Pasche said.
- Leverage can result in big losses. Leverage increases how much you can invest from a margin account to multiples of your balance, and it can lead to devastating losses. Referring to traders who over-leverage, Pasche said, “They go ‘all-in’ on one or two trades and end up losing their entire account.”
- Investor sentiment provides valuable insight. Pasche uses IG’s client sentiment tool to see how many investors are long compared to how many are short. “It’s meant to be used as a contrarian index where we want to do the opposite of what everyone else is doing. Using it as a direction filter for my trades has turned my trading career completely around,” he said.
- Pay attention to risk-to-reward ratios. As an objective measure, they help keep your emotions in check when you’re trading.
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