Trading tips for beginners
Not everyone is able to start trading with a big account. In fact, if you are a beginner, it's certainly better for you not to risk a big amount of money right away. At the same time, smaller accounts do require a special approach.
In this article, we will provide some recommendations on how to trade with small accounts with the maximum efficiency, so that a small account eventually turns into a big one.
What is a small account?
There's no exact definition of a small account. We are likely talking about the cent and the micro account types. Initial deposit here starts from $1 and $5 respectively. Given the fact that the smallest order volume on Forex is 0.01 that corresponds to 1,000 units of a base currency, it's not really hard to do the math and calculate the minimum amount of money you need to start trading.
To do that, consider the leverage you will use as well as the percent of the capital you are ready to risk in one trade and the number of open positions you want to be able to have at one time.
Notice that if you are not sure about the calculations, you can always make some risk-free trades on a demo account or get a welcome bonus from the broker. These options will let you test not only the mechanics of trading but also the quality of the company's service.
Problems of small accounts
The jokes about size are not really funny, and yet the nature of problems you can face while trading with a small account indeed comes from the fact that you don't have a lot of funds at your disposal.
This, in turn, means the absence of a big buffer against mistakes or unexpected losses. As a result, with a small account, it's necessary to be especially vigilant about managing risks. You will have to calculate the acceptable position size, use stop-loss orders and watch your risk/reward ratio and not just open a trade with arbitrary parameters.
The biggest problem of small accounts is that smaller positions mean that profit would be smaller than the one you could get if you traded with bigger sums of money. In addition, you won't be able to make many simultaneous trades.
As a result, even if your trades are successful, s small account will grow much slower than the big one. This can be a major psychological challenge for a trader: after all, who doesn't want to get more money fast? The fact that you put a lot of effort into your trading and it doesn't pay off big time may be very disturbing.
Recommendations for trading with small accounts
First of all, it's necessary to calm down and ensure that your mindset is positive. Everything has to start somewhere and a small account is not a bad thing to begin your trading career. After all, practice has shown that trading with small accounts can be as successful as trading with big accounts.
Get comfort from the fact that with a smaller account you won't risk your financial well-being and yet you will be able to gain the invaluable trading experience, develop patience, discipline, and all other qualities that are good for a trader while making money in the process. If you have realistic expectations and look at everything rationally, you will be able to concentrate on the benefits of trading with a small account.
That doesn't mean, of course, that you shouldn't aim for bigger things. Although this is surely entirely your decision to make, we would like to point out that there's a sense not to withdraw profit you get from a small account.
After all, there's no other good way to make this account bigger, except, of course, investing more money of your own. At the same time, we don't recommend you to increase your typical position size every time your account gets bigger.
Increase the size of your trades only when you are most definitely ready for that and do it gradually. This way you will be able to avoid rash steps while maintaining the sense that you are in control of your money and actions.
Another tip is not to set daily profit goals: the market's situation is different every day, and you can't be sure that every day will offer you equal opportunities (you can actually be pretty sure in the opposite thing). The necessity of meeting a daily target will put you under useless pressure.
You can set goals and track your progress and motivation but choose a bigger scale for that. In addition, try not to compare your performance with the results of others. Focus on what you are doing and on becoming a better version of your trading self.
Next, a small account implies that you should be very active. Try to keep more capital at work: if you have free margin, look for more trade ideas. However, it's very important that in your quest for the quantity you don't cut corners on the quality.
Do you remember that we have ascertained earlier that there would be less room for mistakes? Well, it means that you should be picky about the trades you make and go with those that have the highest probability of success. Here much depends on your trading system and methods of market analysts.
In any case, make sure that you filter out bad signals, have confirmations from several tools of technical analysis and stay psychologically comfortable with every trade. When the price arrives to your target, don't be too greedy and take profit: even if you suddenly want more, no one prevents you from analyzing the market once again and making another trade.
All in all, if you follow these recommendations, trading with a small account will teach you everything you will need to know for managing bigger sums of money. Of course, you won't make billions with a small account, but you will be able to practice and achieve decent results. Never regret the fact that you could have opened a bigger trade. Everything in life could be better, bigger, brighter and so on. Praise yourself for your success and move forward with steady steps - this is the most reliable way to have a big account someday.
This article was submitted by FBS.
