It’s only natural to prefer trading with a large account in the 5 or 6 figure range. Why not? With that amount of money, even if you take risks and lose, you wouldn’t really feel it in your account. You would think that you can be a bit freer with your trades and even risk a larger percentage than you would if your account was smaller. Well the truth of the matter is that those traders who have built up a large account most likely started with a small one. A large forex trading account is rarely handed to anyone on a silver platter. If that were the case, an inexperienced trader would probably whittle it down to a small account very quickly. If you happen to be the owner of a small trading account, be happy! You can learn a great deal from trading small. Be proud that you have an account that you can build and grow.
Risk-Taking Trading with Small Accounts
There is very little room for leeway with small accounts, of course depending on how small you’re talking about. Large accounts have a wide buffer zone, meaning that they can stand to lose here and there and still be large enough to keep going. That is not true for small accounts. If you make a large mistake with a small account, that could actually be the end of the trading road for you. Small accounts are only able to trade markets that have low margin requirements, as opposed to larger accounts that can trade all markets. The trade strategies are limited with less funds and there is more pressure to win every time. The important thing here is to be very strict with the amounts that you risk. Don’t trade with emotions, gut feelings or being overly confident. Keep in mind that you do not have the flexibility that a large account holder has and you must play according to the best practices for small accounts.
Sticking to the Rules: Trading with a Small Account
The first rule to stick to is the 1% risk rule. This is true whether your account is small, medium or large, but it is an absolute with smaller accounts. It’s to your advantage to be conservative with your trades. Don’t try to win the lottery with one trade. Check your risk to reward ratio and be consistent with setting a stop-loss with every entry into the market. One of the major places where you will learn to profit is through your own experience, which must be recorded in your daily journal. This is one practice that pays off with big dividends, so don’t neglect it. After every single trade, write the details down in your journal. Make notes of the market atmosphere, of your mood, of current events and of trends. Spend time going over your past trades to see where you went wrong and how you can improve.
Trade your small account wisely and before you know it, it won’t be so small anymore!