It’s a very common question; let’s break it down so you can see exactly how much you will need to start day trading binary options to forex. It’s recommended that until you have the minimum balance required, don’t start trading. If you don’t have enough capital to start with, it will force you to take on more risk on each trade, which could quickly deplete your account with a string of losses (which can happen to anyone!).
Scenarios are based on risking a maximum of 2% of capital per trade (risk only 1% is recommended).
European Binary Options
With European binary options you wager a set amount, and you either make a fixed payout, like 70%, or you lose your wager (100%).
The minimum wager will vary by broker. If a broker allows $1 bets, then you only need $50 to get started if betting $1 on each trade (2% of capital). Keep in mind though you will want a bit of a buffer. If you lose your first few trades, and still keep betting $1, then you are risking more than 2% of your account…and that is a no no.
If you only want to risk 1% of your account, then you can open an account and start trading with $100 and make $1 bets.
If the minimum wager is $5, then you are going to need 50x$5=$250 to start, absolute minimum. This will allow a $5 wager to be made and it only accounts for 2% of capital.
American Binary Options
American binaries, like on the Nadex exchange, are $100, but this is split between the buyer and seller. The option settles at $0 or $100.
The buyer losses what they paid if the option settles at $0. The buyer makes $100 minus what they paid if option settles at $100.
The seller loses $100 minus what they paid if the option settles at $100. The seller makes what they sold option for if it settles at $0.
The price of the option is based on the probability of the option expiring at $0 or $100 based on the underlying market and time left till expiry. Since these prices fluctuate, a buyer or seller may be risking $90 to make $10, or risking $30 to make $70. The combinations are endless.
But assume you never risk more than $70 on a trade — never buy above $70, or enter a sell for less than $30. That means your maximum risk is $70 per trade.
Risking 2% you can make 50 trades before your capital (any amount of capital) is gone. Therefore, you need at least 50 x $70 = $3,500 to start realistically trading American binary options. If you only ever risk $50 on a trade, then the amount you need drops to $2,500 (50x$50).
Remember this is the bare minimum. A few losing trades and you could be risking more than 2%, so add a little extra.
If you open a micro account, that means each pip movement in the EURUSD (the pair with the most daily volume) is worth $0.10 if you hold a micro lot.
If you are day trading, there probably isn’t much need to risk more than 15 pips on a trade. If you risk 15 pips on a trade, with one micro lot, then you could potentially lose $1.50 (15x$0.10).
If we risk 2%, that means we need to have enough capital for at least 50 losing trades. Therefore, the absolute minimum capital required would be 50x$1.50=$75 to day trade a forex micro account.
Assume you only risk 10 pips per trade. Then each trade only puts $1 at risk per micro lot. So you need 50x$1=$50 to start.
Adjust the scenarios to suit your personal circumstance. Look at the absolute minimum you can reasonably risk on a trade, then multiply it by 50. That is minimum amount of capital you need to keep your risk at 2% per trade. Ideally risk less than 2%, or have more money than the minimum so that if you lose a couple trades right off the bat you aren’t instantly risking more than 2%.
Starting with these minimums isn’t going to make you rich. But if you follow a system that builds that capital over time you will develop confidence, and can slowly add more funds. As more funds are added, or the account grows, continue to keep risk controlled and stick to what has proven successful. A small account can turn into a big account with steady gains and some additional deposits over time to speed up the process if things are going well.