• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Trading Heroes

Trading Heroes

Forex Trading Education

  • Blog
  • Shop
  • About
  • Login

How Much Money Do You Need to Swing Trade?

Forex is a great market to trade because the requirements to swing trade are actually very low. Learn how low they are and how they compare to other markets.

Home / Forex Trading For Beginners / How Much Money Do You Need to Swing Trade?

By Hugh Kimura

A lot of beginning traders think that they have to day trade because they cannot afford to set a bigger swing trading stop loss. The biggest risk of only day trading is that it can easily lead to overtrading.

In Forex, you can swing trade with as little as $500 and still take 2% risk per trade, or less. This allows aspiring traders to develop their trading skills, without risking a large amount of money. 

We will also compare the Forex market to what it takes to swing trade in other popular markets. Since it takes so much more money to swing trade in other markets, you may not believe that it's possible to have such a small swing trading account in Forex.

Let's take a look at the math of how this is possible.

The Math of Swing Trading with Nano Lots

Here's a theoretical trade that I'll use to illustrate the value of nano lots. This is an example of RSI divergence.

The risk on this trade is: 0.78083 – 0.74307 = 377.6 pips

Next, let's say that you risk 2% per trade. So with a $500 account, 2% risk is $10. 

SEE ALSO: 19 Powerful Positive Affirmations for Traders

That's the most you are willing to lose on this trade.

RSI example

377 pips may seem like a lot.

However, when you trade with nano lots, you can trade for as little as $0.0001 per pip. The cost per pip will vary, depending on which currency pair you trade.

But let's just use that as an example.

So to risk $10 on this trade, you would divide the dollar risk by the number of pips:

$10 total risk / 377.6 pips of risk = $0.026 risk per pip

From there, you divide the risk per pip on the trade by the cost per minimum lot size, which is 1 nano lot:

$0.026 risk per pip / $0.0001 risk per nano lot per pip = 260 nano lots

That gives you a trade size of 260 nano lots. 

Take a minute to understand how powerful that is. 

A nano lot has a pip value of $0.0001!

This is several orders of magnitude less risk than a micro lot, which I will explain in a second.

So this is how you can have a tiny $500 account and still swing trade with only 2% risk. 

You can even trade a smaller account and only take 1% risk. 

What if you have a $100 account?

Well, if you risk only 1%, then that's $1.

If you took the same trade with 377 pips of risk, you could still take the trade with 26 nano lots! 

Even though this amount of money won't change your life in a significant way, it will get you in the habit of taking the right amount of risk and allows you to practice your trading strategy.

That's super important. When you use the right process on a small account, that will build the habit that will be very helpful in a larger account.

I know what you are probably thinking. This can be a lot of math to do manually, especially if the market is moving and you have a few trades to execute. That's why I love using TradingView.

Their trade entry screen does all the calculations for you, which makes it super easy. You can learn more about TradingView here.

TradingView trade entry screen

The Math of Swing Trading with Micro Lots

Now let's compare taking that same trade, in the same account, but trading with micro lots. This is the smallest lot size at most Forex brokers.

It's 1,000 units of base currency and when you trade a micro lot, you gain or lose about $0.10 per pip. Again, the cost per pip will vary, depending on which currency pair you trade.

But for illustration purposes, let's just say that each pip is worth $0.10.

In a $500 account, with 2% risk, you are still risking $10.

However, with micro lots, you have a maximum stop loss size of 100 pips to only risk 2%.

$10 total risk / $0.10 per pip = 100 pips

Therefore, you would either have to pass on the trade, or take a lot more risk.

SEE ALSO: The Best Trading Psychology Books of All-Time

For this trade, you would have to trade 4 micro lots, which would mean that you would be risking about 8% of your account on the trade. 

It won't be too many losing trades like that, before you blow out your account. 

So if you open a $500 account and trade micro lots, that's actually very risky. However, if you use nano lots, you can take the right amount of risk relative to your account size.

…and the longer you hang around in trading, the more you will learn and the better you will get.

Swing Trading Forex vs Stocks

NYSE

It's also useful to compare swing trading Forex to swing trading stocks, because the account size requirements are very different.

The first thing to consider when trading the US stock market is the Pattern Day Trader (PDT) rule.

Yes, we are talking about swing trading in this post, but if your swing trades don't work out and they turn into day trades, then the PDT rule will affect you. You could get stuck in a situation where you see a perfect trade setup, but you cannot take the trade because of PDT restrictions.

Therefore, it's useful to have more than $25,000 in your account, even if you are swing trading.

Even if you are super cautious and avoid the PDT rule, a small account will limit you to only a couple of trades at a time. If you only have $500 in your account, you can only really have one trade on a time.

…and consider commissions.

Most discount stock brokers will charge about $7 per trade. There are more “no commission” brokers like Robinhood coming out, but you are still going to pay a little spread with these brokers.

But for the sake of example, let's say that you are paying $14 per trade. That's 2.8% of a $500 account. It's going to very hard to turn a profit when you are already in a decent hole at the start of every trade.

So if you want to swing trade stocks, you will need at least $2,000 in your account, and a $10,000 account would be a much safer starting point. Since stock prices can vary a lot, it's better to be prepared with a bigger account.

Swing Trading Forex vs Futures

If you thought that the requirements to trade stocks are high, then swing trading futures requires even more capital. For example, let's take a look at a mini futures contract.

A popular one is the S&P E-mini. These are the specs from the CME website.

E-mini futures

The important number here is the dollar value per tick. A tick is the smallest movement in that market, like a pip in Forex.

You're making or losing $12.50, every time the market moves!

In order to swing trade a market like this, you will need to have at least $50,000 in your trading account and more is better.

How Much Money Do You Need to Swing Trade For a Living?

Trading on iPhone

This is the real reason you Googled this question, right? 

So before I end this post, let's examine how big of an account you would need to swing trade for a living.

If anyone tells you that everyone needs $X to trade for a living, they don't know what they're talking about.

There are many variables that go into determining how much it takes to swing trade for a living, so it's impossible to have a blanket number that will work for everyone. 

Here are the primary things to consider:

  • Your base living expenses
  • The lifestyle level you want to maintain
  • Who else are you supporting?
  • How much do you want to put into savings every month?
  • What are other expenses that you would incur by trading full-time (medical insurance, etc.)?
  • The reliability and return of your trading strategy
  • How will you handle a trading drawdown?

The best thing that you can do is to have a reliable income, while you are learning to trade. Build your savings with your trading profits. 

Once you are able to make 2-3 times your current income with trading, you can consider swing trading full-time. When it become obvious that you are losing money by going to work, then it's probably time to quit your job and trade.

…or maybe not.

You can always keep your job or even work a part-time job to have a reliable source of income. It just depends on your goals, what you feel comfortable with, and your other obligations.

The best place to start is by tracking your expenses. Remember to add some padding to account for emergencies. You may not realize how much you are spending.

On the flip side, you might not realize how low your monthly costs are. If this is the case for you, it will be much easier to replace your income with trading.

Conclusion

Swing trading can give traders freedom to only check the charts a few times a day. But many beginners are under the impression that they cannot swing trade because their account is too small.

While this might be true in other markets like the stock and the futures markets, Forex is unique in that you can trade nano lots and still take the correct amount of risk for your trading psychology, trading strategy and account size.

Related Articles

9 Reasons Trading Educators Don’t Share Their Track Records
What is a Pip in Forex Trading?
18 Reasons Why Forex Trader Is The Best Job Ever

Category: Forex Trading For Beginners Tag: Swing Trading

About Hugh Kimura

Hi, I'm Hugh. I'm an independent trader, educator and researcher. I help traders develop their trading psychology and trading strategies. Learn more about me here.

Top

 

Share This Article


First posted: February 20, 2020
Last updated: February 21, 2020

Primary Sidebar

Trading Guides

How to Figure Out Your Trader Personality Profile

The Best Trading Books Ever

The Ultimate Beginner’s Guide to Forex Backtesting

How to Create a Precise Trading Plan (with PDF worksheet)

Footer

Company

  • Support
  • About Trading Heroes
  • Trading Courses and Education
  • T-Shirts & Trading Gear

Tutorials & Guides

  • Recommended Trading Resources
  • Free Forex Trading Course for Beginners
  • The Trading Blog
  • Best Trading Books
  • Forex Trading Strategies
  • The Trading Lifestyle Podcast

Community

  • YouTube
  • Twitter
  • Instagram
  • Private Trading Community
  • Contact
Trading involves substantial risk and there is always the potential for loss. All content on this website is for educational and informational purposes only and is not trading, investment, or medical advice. You should be aware of the risks associated with trading and seek advice from an independent certified financial adviser if you have any doubts. Some links on this page might be affiliate links, where we get a small commission if you purchase through the link. It doesn't cost you anything extra and we only recommend products that we absolutely love. This site uses cookies and using this site means that you agree to the use of cookies.

 

CFTC Rules 4.41 - Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Testimonials appearing may not be representative of other clients or customers and is not a guarantee of future performance or success.

 

 

 

 

 

Copyright © 2007–2022 TrueLiving Media LLC | Terms | Privacy | Risk