By The Trader
By The TraderShould the minimum deposit be a big deal?
The Right Amount to Deposit – High vs Low deposit
Before you start wondering about how much to deposit, you might want to check the broker’s minimum deposit requirements. Whilst a £250 minimum requirement seems to be the average for many brokers, there are also brokers that allow a £5 deposit.
But why do the minimum deposits differ and how will this affect you? Is there anything to be gained by depositing a larger or a smaller sum? There are a few key factors to consider before making your first deposit that I will share with you now!
Why are there Different Minimum Deposits?
First of all, we could start by asking why there are so many different minimum deposit limits. The simplest answer is that this is down to the broker’s business model. However, what drives the limits for the minimum amount is also related to how the brokers market themselves and how well-capitalised they are. Another reason for the limits can be VIP, or other special account types, that come with unique offers. The more favourable perks each account offers, the higher the deposit usually is – brokers rarely give anything away!
The perks can range from: free withdrawals, better bonus deals, higher payouts on certain assets and access to educational material and more.
Deposits and money management
Now let’s move on to the more important trading-related factors. Set a deposit amount with money management in mind when it comes to your payment. There is nothing more important than investing an amount that allows proper money management. Your deposit should be based on both the minimum allowed trade size, and your attitude to risk.
Sounds too complicated? Then here are a couple of examples: Let’s suppose you make a £250 deposit with a broker where the minimum trade size is £50. There isn’t much cover here, 5 losses in a row and your account is empty. Yes, even the best traders will sometimes face 5 or more losses in a row – hence the problem with not having enough in the trading fund. On the other hand, a £250 deposit with a broker where the minimum trade size is only £5 means your coverage is 50 times! This means that you can even double up your trade size after a win or two in order to multiply your earnings without taking too much extra risk.
Deposit with your strategy in mind
Just as there are different minimum deposits, there are different types of traders. Obviously, if you only do 2-4 trades per day, you have more to gain from a higher deposit than a lower one. After all, you are trading to make money right? Then ask yourself how much your time is worth. With a £1000 deposit and minimum investment size of £25, a low volume trader might be able to reach a 4-10% turnover during a good trading day with only 4 executed trades.
On the other hand, if you are a short term trader who loves 60 second trading and you are going to place hundreds of trades per day, you don’t want to risk too much per trade. Short term trading is riskier and the payouts are often much lower. Therefore, in my experience, short term traders prefer high volume and low investments per trade and they can do fine with a lower deposit so long as there is still a high amount of cover.
High deposit v low deposit – conclusions
In conclusion, a short term trader that places high volumes of trades on an account with a low deposit, can reach the same turnover as the low volume trader with a much bigger account size. Deposit with due diligence in mind before investing your hard-earned money with any broker, you need to test them.
That’s why it’s always best to make the minimum required deposit first. Try out the platform, withdrawals, support and the features you care about prior to making a bigger investment. A secret I can share with you is that it’s always better to make a smaller deposit first and then negotiate yourself some perks for your next deposit. For example: If you were thinking of depositing £5000, don’t just do it all at once. Start with the minimum requirement first and use the remainder of that £5000 as leverage to negotiate some favourable deals! It won’t work with all binary options brokers but again, do some research first to see what offers are made to higher depositors.
Nervous about going live? A low deposit could be the cure. I hope you have learned a thing or two about why making a lower vs higher deposit can affect your trading in terms of cover, perks and your strategy. One thing I didn’t mention above is trader psychology – the mental aspect of making a deposit. It matters too, and for a good reason. When you start to trade on your live trading account after your demo testing period is over, it can be stressful knowing that you can lose real money. Because of this, it is smart to start with a small deposit with a broker that allows a very low minimum trade size so you can overcome the fear of trading with real money. Once you feel like you can actually make money on a live account, you can make an additional bigger deposit if you wish and make more money from your successful trades.
