First of all we are going to clarify that the answer to this question is specific to each person. More than one expert would say that if a trader is asking himself this question means that he is not ready to invest in the market, let alone in the Forex. These points are related to one of the fundamentals of trading, which is to develop and follow a strategic plan disciplined. The initial phase of any trading strategy is to define its operating capital, which means first of all asking yourself this question: How much am I willing to lose?
The second part of any strategic plan is to analyze the market in which it is operating and define how much money is needed to reach our strategic goals. For example, is your goal to live long-term trading so you can support your family? Or simply What you want is to learn something about the Forex market and operate with real money from time to time for hobby? Your answers to these types of questions define the amount of capital you need to start trading on the Forex or any other financial market.
You have to understand that trading is a game only if the person has enough money to treat it as such. Otherwise it is a serious business and should be treated as such with any other business, before risking real money. For this reason it is essential to develop a business plan and from there to invest the capital according to that plan. The capital needed to make money and how much money a person is willing to lose is what defines the amount of capitalization.
Therefore, before opening a trading account and risk a single penny in the markets determine realistically and sensibly how much you are willing to lose in case things do not go as planned. For this, you can apply the following tips.
Realistically determine your financial situation. What are your current and future income and expenditures and which of these expenses are indispensable and which are not.
Based on the previous point divide your money into two groups:
Essential money to keep your lifestyle more or less the same. This money should not be touched under any circumstances.
Money you could lose without seriously affecting your lifestyle. Here the person must analyze how much of this money is going to risk and if he plans to increase that risk in the future.
Never risk money from your savings, home mortgage, study funds for children or even the money needed to survive month by month. Trading is too risky an activity and the person must have the money to cover these items.
Always keep in mind the worst possible scenario.
Do not have false expectations with the trading, having the hope that will recover in a few months the money invested. Do not take into account the potential gains you may have in the market when determining the money you can risk. Profits may or may not occur, as it is the nature of the markets. Always suppose you could lose everything.