New traders, who may or may not have found currency trading by chance, would probably be the prime suspect for asking the question: how to trade forex with a small account? And, it makes sense why this question pops up; whether it’s embarking on a new venture or experience, the fact that you are still unacquainted with the activity only incites anxiety.
Think of starting an Amazon FBA business: The process begins with negotiating a deal with a Chinese manufacturer, next is the shipping process, then the actual listing of the products on Amazon and last is the sales process along with the restocking of your inventory. These procedures starkly disconcert the new Amazon seller and as a result, the minimum quantity of goods — sometimes much less — are ordered. A more considerable investment sum would not make sense at this point where the new seller is still dipping his toe in the water.
But how do you manage a small account in forex though? How do you trade with an amount other traders laugh off as a time waster? Well, written below are six ways that can help you keep and grow your account in the long run. Hopefully, after reading this article, you may find the suggestions you are about to learn are useful and practical.
Do not expect to be a millionaire
Let’s board the reality train for a minute. If you are hoping to churn out a million dollars through currency trading in the next few months, I’d suggest you see a hypnotist and get that thought flushed out of your system. Not igniting pessimism at all, but let’s take a little dose of pragmatism here — a million dollars in a couple of months or even the next few years with a $100 account is nothing short of a sweepstakes ticket, and I’d probably give the ticket the upper hand.
There’s a reason why it’s remotely possible to get to a million, and that is because of leverage. While the use of leverage will, no doubt, boost your profits, it’s also the main culprit for obliterating your account. Let’s dig dipper into that later.
Treat it like a business
You’ve probably heard of this before, but treating trading like a business rather than a game of baccarat will enhance your chances of preserving your account. By approaching trading as a business, you take a more calculated strategy for each transaction you make.
Some traders even keep trading diaries which contain records of their gains and losses as well as the rationale for taking each trade. I suggest going as far as generating monthly reports for yourself about your progress with complete excel charts or graphs; in this way, you cultivate a mental approach that isn’t leaning towards gambling.
Do not use leverage
If possible, do not use leverage at all. With a $1000 account, which is also considered a small account, the minimum lot size can be traded without using leverage. Using an absurd amount of leverage only forces traders to think in terms of profit which, as we will discuss next, damages your account.
Money still matters, obviously, and that is the whole point of trading, but if you are bounded by the reality that you do not possess a $100,000 account, then it would be best for you to make use of what you have.
The successful use of leverage does not indicate a sound trading strategy, and despite a more amplified paper profit, it is still a double-edged sword that deranges your consistency game.
Speak in percentage
With a modest account, it would be more practical to talk gains in percentage terms rather than the exact dollar amount. As I noted before, the dollar amount of profits or losses makes you focus on what you don’t have.
For example, if your account is $1000 and it moves up and down on a $200-$300 range daily, in percentage, that is already a movement of 20% to 30%. While most of the great investors of our time shoot for the same rate annually, you mess around with those percentages on a 24-hour basis. Think about it if an investment management firm with a hundred million dollars in assets under management earned $15 million last year, then percentage-wise that’s 15.
On the other hand, you, with the $2000 trading account, made $400 in twelve months of trading, then that means you beat the fund by 5%. And, if you can stay consistent with that same rate (or at least close to it) year in year out, it will not matter how much is in your account as long as you have a system in place that reels in steady profits.
Treat your real account as a demo account
Now, this advice will work only for $100 accounts and maybe up to $500, but if your account is bordering a thousand already, then it’s best for you to skip this part. The reason why I suggest you treat an account of that size as a demo is only to spark emotions in your trading, but the suggestions before this still follow.
I’ve heard so many stories from traders about the profits they made on a demo account, but when real money is at play, they struggle to keep their accounts afloat. So, with these bag of emotions, the job of the trader is to tame them and execute their game plan cold-bloodedly.
Trade with a reputable institution
Lastly, when you open an account, be sure to trade with a company with a name to protect, one that doesn’t have conflicting interests with clients. Even if you plan to trade with just a thousand bucks to start, the company should have the tools and facilities to help you, not bonuses to tempt you to trade more so they can earn commissions.
It is also ideal to find an institution with plenty of liquid assets because it assures you that you will not be working with a dishonest broker who sucks away at your investment. Also, look for regulated brokers such as those that belong under the FCA umbrella.
It is indeed possible to trade with a small account, but a trader must be guided with the suggestions mentioned. The key takeaways here is that for you to effloresce as a forex trader with little capital, you must be serious about trading. Second is that high leverage will ultimately destroy your account and it is not the way for you make a consistent income. Third, keep your emotions intact and talk in percentages when it comes to your results. Lastly, don’t expect to make a million as it is just not possible with a hundred dollars in your account and make sure to trade with an institution that values you as their client.