How Much Does it Take to Start Forex Trading?

By Jamie Hill - 14 January 2020

Features

Forex trading is a trading system also known as the foreign exchange market, where international currencies are exchanged.

Currency fluctuations are capitalized on and then bought and sold among traders in order to gain a profit. Similar to the stock market, Forex trading requires initial fees and costs, but has the benefit of having low initial investments. So how much does it cost to start Forex trading?

Demo Trading

Prior to investing any real money into the foreign exchange market, you might want to use a demo program in order to get a feel for how the exchange works. If you've done any stock trading on the TSX (Toronto Stock Exchange) or the NYSE (New York Stock Exchange) it runs similarly to how banks offer you a demo program to test the waters. This allows you to play with the numbers for a bit and adjust to the sort of fluctuations you'll find in the currency exchange market.

The great thing about demo trading is that in a lot of cases, it's free and you won't need to worry about investing money trying this out. If you're looking into online trading platforms you want to find a platform that has a free demo trading service. The experience this will give you is invaluable and will save you the hassle of losing money attempting to figure out the service. Many platforms will allow you to copy or keep track of the movements of various traders if you’re finding a particular methodology that has a relatively high success rate.

Initial Investment

Similar to trading stock, the foreign exchange markets generally require a minimum initial investment. While some more traditional platforms may require a minimum deposit of 10 000$ or more, a lot more services are catering to the everyday person and require a minimum deposit of 100$ or more. Depending on the form of a platform that you choose to use, the minimum requirement to start trading will vary. Choose whatever platform suits your needs and start trading. Just remember to keep your initial investments modest until you get a feel for the market atmosphere.

 

Commission Fees – Inactivity Fees

Another cost to take into consideration is the commission fees of various traders. Generally, traders will require a commission percentage based on your gains from various trades, this is because you are using their platform to trade. The costs are generally minimal and range between a few percentage points, and you can weigh commission rates with initial investment costs to choose a platform that works for you on the Forex market. Some traders may charge you a fixed fee per transaction instead of a rate.

Some platforms may also charge an inactivity fee if you haven't been completing trades for the duration of the month. Generally, it's not a substantial amount and may range between 10-20$ for the month. If you don't see yourself continuing to use a platform I'd recommend canceling your account to avoid incurring any large amount of continuous surcharges.

Taxation

As with the stock market exchange, Forex trading profits can be taxed by your local government. The laws for this form of taxation may vary from country to country and you can review local laws online yourself. Ultimately, consider a consultation with a tax lawyer in your area who is familiar with Forex trading, as they will be able to provide you with concrete answers to your questions. You'll want to make sure to keep a record of all the transactions you've made for the year prior to filing your taxes. Getting professional lawyers to help with this is better than having to pay a large yearly sum to come tax season.

The costs associated with getting involved in Forex trading are minimal, but you will likely want to dip your toes into the water with demo trading first. This will allow you to get a handle on the market and how it differentiates from stock trading if you have had any prior experience with that. You'll likely have to spend as little as 100$ or more to get started in trading, but you can choose a platform that requires a higher investment if you so choose. Some trading platforms may charge you a rate or a fixed fee as a commission to run their brokerage, and inactivity fees may be incurred if you don't consistently trade on the platform. Make sure you are consulting the proper professionals in regards to taxation laws in your region, and enjoy getting started in the Forex trading world! 

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