Forex day trading with $1,000 (or less) is possible, and even profitable. Forex trading allows you to control your position size precisely, and utilize leverage, both which aid a small trading account. In the stock market you can’t do that as effectively; to have a day trading account in the US you need a minimum of $25,000. In the forex market you can start trading with less than $1,000. That doesn’t mean you’ll be able to make a living off trading right away, but you can build your account by following proper risk management, using a low spread broker and placing about 4 to 6 quick day trades in the span of a few hours. Here’s the blueprint for doing it.
To keep the article to a reasonable length, links are provided to articles or resources with more information on a given topic. Please read those as well to get a full grasp of the concepts.
Getting Setup in Forex- Account Type and Broker
If you’re trading with $1000 or less–and want to build your account–I recommend trading through an ECN broker that offers a near-zero spread. Also, trade the one-minute chart with a trend following strategy (more on this in a bit).
I use an ECN broker because I can capitalize on short-term opportunities and still manage my risk. Using a normal broker, with 1 or 2 pip spread on the EURUSD, means you’re paying 4 pips total to get in and out. If trading a mini lot, each pip is worth $1, so a trade is really costing you $4 per mini lot (and if your objective is to to make 8 pips, or $8 per mini lot, well, you see the problem). It’s an opportunity cost, because it eliminates the possibility of you making those four pips. On the other hand, my ECN broker charges about $2.5/100K (less if you have a larger account), so a mini lot (10K) only costs about $0.25 to get in and $0.25 to get out ($0.50 total). A micro lot (1K) only costs about $0.05 to get in and out. That’s a BIG difference, and can mean the difference between being positive or negative for the month.
As a day trader, one of the most crucial factors is the spread you pay (the difference between the bid and ask prices)–it has to be low if you expect to succeed. During active times, such the US and London session, the spread is typically around 0.1 to 0.4 pips (yes, a small fraction of a pip) with an ECN broker. Take a few trades in an ECN demo account and you’ll see what a massive advantage it is not having to concern yourself with the spread.
When dealing with an account less than $10,000 (and especially $1,000 and under) always make sure you have the ability to trade micro lots, also referred to as “0.01 lots”. Micro lots give you the ability to really fine-tune your position size and risk on a small account.
I also recommend using about 30:1 leverage. The reason for that is explained later.
Day Trade Using the One-Minute Chart
Never risk more than 1% of capital on a single trade.
With a near zero spread, I can actively trade price moves that are about 8 to 25 pips from start to finish. I set a profit target of 7 to 10 pips (potential more on certain trades), and a stop loss of 4 pips (this may vary slightly by trade) and am able to trade those price waves you see on the 1-minute chart during the London or early US session (see How to Day Trade Forex in 2 Hours or Less for the strategy).
Volatility is always changing, which means how many pips are risked and captured also changes. Where stop losses and targets should be on a particular day/trade is addressed in the comprehensive forex article linked above.
If I trade on a 15-minute chart I may only get a couple trades in each day, and I need to spend most of my day watching to make 4% maximum (if I win two trades with a 2:1 reward:risk ratio). Now 4% is a great daily return, but that is the best case scenario (because you are risking 1% of your account per trade, if you make 2:1 on those trades, you are up 2% on each x 2 trades). Now, check out a 1-minute chart in the EURUSD and you’ll notice multiple small trending moves during the London and early US session we can capitalize on (don’t trade around news, so ignore crazy big price bars which are typically news related). On a 1-minute chart you can make about 3 to 6 trades within a two to three hour period. Now assume you win all those, you’re looking at a 6% to 12% gain in a couple hours (assuming all winning trades and a 2:1 reward:risk ratio).
It’s ridiculous to assume you’ll win all your trades and make 6% to 12% per day! You won’t, but your upside potential is greater by taking more trades on a shorter time frame.
Let’s quickly review what you need to do:
- ECN broker for day trading; the smaller the spread and the lower the commission the better.
- Broker must allow micro lot trading if you are using a $1,000 (or smaller) account. A micro lot is worth $0.10 per pip of movement, multiplied by how many micro lots you have in your position.
- Day trade the EURUSD.
- Day trade during the London or early US session.
- Trade the price wave on the one-minute chart.
- Only trade for two to three hours. That is more than enough and will typically produce about 4 to 6 trades.
- The most we lose on a trade is 1% of our account.
- For our 1% risk on a trade, we should be trying to make 1.75% to 2%
Forex Day Trading with 1000 dollars (or less) – Expectations
If you put in hard work on a demo account practicing the strategy, and risk less than 1% of your account on each trade, you can steadily grow a $1000 account day trading currencies.
Assume a winning percentage of 50% (you are winning 50 trades out of a 100), 4 trades a day, an average stop loss of 4 pips and an average target of 7 pips.
If you are forex day trading with $1000 for 20 days out of the month, and use a fixed position size of 25 micro lots [which keeps risk below $10, or 1% of the account: 25 x $0.10 x 4 pips = $10 being risk per trade, which is 1% of the $1,000 account balance. Adjust position size according to account size and stop loss level], here’s what you can potentially make in a month:
20 days X 4 trades = 80 trades
50% of 80 trades are profitable = 40 winning trades and 40 losing trades
A winning trade is 7 pips (which is $0.70 per micro lot) X 25 micro lots = $17.50
A losing trade is 4 pips (which is $0.40 per micro lot) x 25 micro lots = -$10
Winning trade total is 40 trades X $17.50 = $700
Losing trade total is 40 trades X $10 = $400
Monthly profit (excluding commissions) is $700 – $400= $300
Total commissions are 80 trades X 25 mirco lots X $0.05 (round trip) = $100
Monthly profit (including commissions) is $300 – $100 = $200 uncompounded.
That’s about 20% on the $1,000 account. Don’t expect to make that, at least not right away. These numbers are meant to show the potential, not the reality. Unfortunately, most traders end up losing.
As long as your risk is 1% per trade, you trade about 4 times a day, have a win rate of 50% and a reward to risk of about 1.75:1, then no matter what your stop loss and target levels are your results will reflect the returns above. During low volatility we have smaller stop losses and targets, and during high volatility we have bigger stop losses and targets. It doesn’t matter; it all works out the same.
Forex Day Trading with 1000 dollars: 20% per month
20% per month may seem very high, and for most traders it is. Leverage is used extensively though. The account is only $1,000, but we are taking positions of $25,000 (the 25 micro lots). In other words, we are leveraged 25:1 to make these returns!
A 3 to 4 pip stop loss is close to the smallest stop loss I would have on a trade, and would be appropriate only when volatility in the EURUSD is low. If using a 5 pip stop loss, you’ll only need about 20:1 leverage, because your position size will be smaller due to the larger stop loss (increasing from 4 pips to 5 pips). If the position size doesn’t make sense, read How to Determine Position Size. Position size changes as your stop loss changes, which is why it doesn’t matter if volatility is low or high. This style of trading adapts to it, helping to normalize returns in all market conditions.
I have no problem with leverage because each trade has a stop loss on it and I never trade within 5 minutes of news releases. Therefore, while I may get some small slippage on the odd trade, it’s very unlikely the slippage is enough to hurt my trading day or account (but yes, it could happen). I also only day trade the EURUSD during the late London session or early US session when liquidity is at its peak. This helps reduce the risk of catastrophe.
It is also important to point out though that when you use leverage, you can lose everything, and even more money than you deposited, resulting in a large debt to your broker. When you trade on leverage you are borrowing money to trade. If a big move happens, you may not be able to get out of your position. Examples of such events, that could have wiped out a leveraged day trader, include the GBP flash crash (one reason we don’t trade outside of high volume times) in October 2016, and the January 2015 CHF surge.
My broker also provides a MetaTrader plugin that automatically places stop losses and targets. I set what I want the stop loss and target be (in pips) and when I enter a trade the stop loss and target are placed at the same time. If I want to adjust the target slightly once in a trade I can drag the order to the price I want, right on the chart. I strongly encourage this type of plugin so risk is controlled as soon as the order goes out, and trades can be made very quickly.
Quick review of this section:
- We trade during the London or US session for about two hours on the one-minute chart.
- Volatility doesn’t really matter; when it is high our stop loss will be a bit bigger, but so will our target (our position size will be smaller). When volatility is low, our stop loss will be a bit smaller, but so will our target (our position size will be bigger).
- If you can make 4 to 6 trades a day, win 50% of the trades, and on average have wins about 1.5 to 1.75 (or more) times bigger than the losses, then you will be building a solid forex income. Play with these numbers to see how different scenarios and strategies could play out.
- It seems easy; it isn’t. It takes a lot of practice and time to get to this level.
- With leverage, it is possible you could experience a catastrophic loss.
Forex Day Trading with 1000 dollars (Or Less) – Final Word
It is unlikely most traders will ever reach a level where they can make 20% per month (even with leverage), even though the simple math here makes it look easy. Yet it is possible to start building a forex income, even on $1,000.
With leverage you can lose everything, and even more money than you deposited. It is possible you could end up with a debt to your broker. Such occurrence are more frequent if you hold positions through news events, but even if you don’t, surprise announcements can jolt the market which means your stop losses may be ineffective. This isn’t common, but you should be aware of the risk before trading. Most traders who attempt short-term trading fail at it.
You need to control your risk and keep it small–risking 1% of capital or less per trade–in order to make good profits. This runs counter to the popular belief that you need to risk more to make more…FALSE! Keep your risk small on each trade, and your profits bigger. That’s the way to grow an account and see good monthly returns.
For more on day and swing trading forex , see my Forex Strategies Guide for Day and Swing Traders.
More than 300 pages packed with strategies and a trading plan so you start trading the right way. Begin building your forex trading success story.
By Cory Mitchell, CMT