But with the high risk characteristic of forex investments come the lucrative profit potentials that can be achieved when done correctly and wisely. Maybe you have heard of the scary statistic that 9 out of 10 forex investors lose their money on forex trading within the first few weeks of trading. And similarly, you may have also heard of the success stories of forex millionaires who trade for a living using forex investments.

So maybe you want to try your luck with forex trading. Of course, you would not be going into forex investments with just luck as your weapon. Maybe you have already done your research and your training. You may have already developed a profitable trading strategy using a demo account. And now, you want to test it on a real, live account.

But you are not sure as to how much would be the initial deposit that you should invest when you open your real, live forex account.

Factors To Consider For Your Initial Deposit

In order to come up with a figure, you should first ask yourself a few questions.

1.) How much investment can I afford to lose?

Let’s face it. Forex is very risky. And if 9 out of 10 investors lose their money in forex, better be prepared to be one of those nine unlucky investors. But of course, you would not be investing with a losing mindset. This is just to determine an amount which you would not lose sleep over should you lose entirely. Think of it as money that you would not be needing for the college education of your children. Or money that you can afford to splurge for in a vacation. This should be money that, once you lose, you can always get back without much heartache and hardships.

2.) How much is the minimum investment with the forex broker that you chose?

Whether you are targeting to open a standard account, or a mini account, or even a micro account, you should know the minimum investment that you forex broker allows. Then compare it with your answer to the first question of how much you can afford to lose. See where your amount can be accepted. It is usually advisable that you do not invest the floor minimum amount required by the forex brokers. For example, if the minimum for a mini account is USD 300, and USD 1,000 for a standard account, and you have exactly USD 1,000 in funds that you can invest, it is advisable that you choose a mini over a standard account even if your funds are sufficient to open a standard account. The reason for this is that you can have more margin to maneuver from with a mini account than with a standard account with the amount that you have. Surely, you know about margin requirements and proper capital management if you have already done your homework in these areas.

3.) Would the amount that you can invest be enough with the number of trades you would be making in any particular time be enough considering the type of trading strategy that you would use?

Different trading strategies require different types of margin. If your strategy requires that you open several lots at the same time, or that you strategy includes adding up trades at certain levels, you should compute if the money that you can invest is enough to cover the margin required for this type of trading. And not only should it be enough to cover the margin, but it should leave your account an acceptable room to breathe and maneuver should the market move against your position. Again, the reason for this should already be clear to you if you fully understand the value of risk management for your capital.

With those three questions, you should be able to arrive at the figure for your initial deposit for your live forex account. Remember that these guidelines are aimed to ensure that you have room for proper capital management while making sure that you minimize the risks associated with forex trading.

Forex investors should know how to evaluate investment strategies based on the risks that their accounts are exposed to based on forex drawdown. Forex drawdown is the amount, either in absolute value or percentage terms, of decline in a forex account’s equity through the course of trading.

For any given instance that a position is opened in trading account, the value of its equity changes from time to time depending on the current floating profit or floating loss that the open trade is incurring. Even if the said trade has not yet been closed and liquidated, the equity also rises and falls as the price for the traded currency pair fluctuates.

Forex drawdown is important in determining if a forex strategy is a good strategy. Forex drawdown gives the forex investor an idea of how risky a forex strategy is. If a trading strategy has a relatively large amount of drawdown when compared as a percentage to the account’s equity, that strategy may be considered risky. It is risky because it puts excessive strain of the account’s equity for the open trades it takes before it can make a profit. And an excessive forex drawdown may also eventually lead to a forex account losing a considerable part of its value as a result of risky trading strategies.

Forex Drawdown and Signal Providers

Forex drawdown can also be used to evaluate forex trading signal providers. In the same way that strategies are assessed by the risk factor that it exposes a trading account, forex signal providers should also be evaluated with the amount of risk their signals put on an account. Forex trading signal provider should be able to give profitable trading signals to their clients without taking too much risks. The value of any amount of profit generated by trading signals should be analyzed in view of the risks that were taken during the trade to achieve that level of profitability. As an example, if a forex signal provider suffered a floating loss of 100 pips before the price of the currency pair turned around and hit a 10 pip profit, is it worth it for the investor? The forex investor risked 100 pips to be able to gain just 10 pips of profit.

Risk Factor and Forex Drawdown

While the example above was made using pips as the basis of analysis, the more correct and more accurate way of evaluating forex drawdown and the risks involved should be by using the percentages based on the forex account’s equity. Of course, different forex investors have different appetites for risk. And depending on how much risk you are willing to take, the amount of forex drawdown varies from one investor to the next. But remember that most of the time, the amount of risk that a forex investor is willing to take, based on the relative amount of forex drawdown that he exposes his account to with his trades, usually determines if his account can survive the volatile markets of forex in the long run. The profitability of a forex account is usually correlated to the length of time the account stays alive to trade in the forex markets.

So evaluate the risk factor you are willing to take with your forex account by computing the forex drawdown you are willing to take with every trade that you open. Proper capital management should dictate that forex drawdown be maintained at a minimal amount for an account to remain profitable in the long run.

Forex Signal Providers are as varied as the different trading strategies being employed in forex. There are many forex signal providers offering their services in the internet. And it is quite a task choosing which of these forex signal providers would fit with your investment goals in forex.

So how do you choose the best forex signal providers for you?

Your Goals and Personality

It all mainly depends on your investment goals and trading personality. Different forex investors have different investment goals and trading personalities.

On investment goals, these are some investors who prefer a steady but sure increase in their capital. Some prefer very low drawdowns and very minimal exposures in terms of lot positions. Others like to amass their profits overnight, while some prefer to build on their gains over the course of days, or even weeks.

Trading personalities are also very varied. There are investors who like scalping and would settle for any profit, even if the corresponding risks associated with it are quite high. Other forex investors prefer long-term trades which are more based on fundamentals, and not on technicals. Others have multi-faceted trading personalities where they prefer to employ different kinds of trading strategies depending on what the market gives them. Whether the market is trending, ranging or reversing, they have the appropriate trading strategies to use to gain full advantage of every market condition.

Based on these variations in investment goals and trading personalities, you should choose your forex signal providers based on these. The closer the forex signal provider is to your goals and personality, the better fit he is for you. You have expectations as an investor, and your signal provider has a track record of how he analyzes the market and sends out his forex signals. See if the two can reconcile and match as closely as possible. If they do not, then choose another forex signal provider.

Track Record of Signal Providers

Know the track record of the signal providers. It is a lot better if they have trading histories of their own accounts that they trade according to the signals that they provide. Research their trading records and the signals that they sent out. Analyze if you are comfortable with the way they “pull the trigger” for every trade that they make. Scrutinize the positions that they open.

Ask a number of questions to yourself. How did they arrive at their ROI? Was it based on a very few but immensely profitable trades? Or is the high ROI a result of numerous small trades which built up their capital. What are their average pip gains against average pip losses for their positions? Are you comfortable with the way they open numerous positions? At which point do they cut losses? Are the risks that they are taking tolerable for you?

It is not enough to base your decisions on their ROI alone. It is true that a higher ROI is better for investments. But if the high ROI carries with it a very high risk factor to be able to achieve it, would you be willing to take the same risks yourself with every trade signal that your forex signal providers make?

Just as studying the forex markets and learning how to trade entail a lot of research and analysis, so is choosing a forex signal provider. It is your investment that you are talking about here. So be very careful and diligent in doing your homework. Choose your forex signal providers wisely.