I get this question a lot: ¬†Is it worth it spending time trading when you only have a small account?
They may only have $1,000 and think that even if they make 5% or 10% that is not a lot of money. ¬†Thus they may never get started trading and never gain the trading experience necessary to make the bigger profits.
The trading journey has to start somewhere. ¬†And for many traders that starts out with a small account maybe in the few hundred dollars or few thousand dollars.
The trader Michael Marcus started out trading with $1,000 then lost it all. ¬†Then he proceeded to start over again with $3,000 and got that account up to $30,000. ¬†Then he borrowed another $20,000 from his family so he could bet his whole account on going long corn and wheat. ¬†Marcus lost it all. ¬†Then he had to start over again with $700 of his own money with his friend chipping in another $700 so he could have enough money to open up an account. ¬†That $700 turned into tens of thousands of dollars within a few years after a wild ride. ¬†Of course he was riding some pretty big commodity trends back in the 1970’s.
Richard Dennis, the trend following trader started out trading with only $400.
Everyone has to start somewhere to gain experience placing live trades, experiencing live emotions, experiencing the joy and pain of the profit and loss.
Benefits Of Starting Now With A Small Account
There are many benefits to trading a small account if that is your only option:
1. ¬†You can use what if scenarios to say if you made 10% with a small $1,000 account which is only $100, what if you made 10% on a larger account of $10,000 which would be $1,000, and visualize how much money that would be.
2. ¬†You actually have a chance to understand which trades fail and which succeed. ¬†You can actually start to do research on which trades are high probability and why they could be so.
3. ¬†If you find the high probability trades you can therefore place more size into those and make more money.
4. ¬†If you take profit prematurely, then you can tweak your system and do more research to discover how to capture more of a big trading move.
5. ¬†You can realize that the easy money is made when the market explodes with volatility.
All that good stuff above can begin to occur.
Without it, then how are you going to realize what series of trades can make you money and what a good and great trade looks like?
It gives you hope. ¬†You realize that there exists great potential. ¬†It doesn’t mean that you go and attempt to leverage up and risk your whole account, and risk blowing your account. ¬†You should not do that. ¬†But it does make you realize that the forex markets are not a conspiracy and that it is actually possible to make money from them – a lot of money.
You catch a few great trades and see the market explode with volatility. ¬†Then you start to say to yourself, what if I could of captured that move with this % risk and trailed my stop up, ¬†then I would of made this % return etc.
That causes a few epiphanies to occur and you begin to formulate a system. ¬†It may only be the beginning stages, but it is a great start nonetheless.
Disadvantages of a Small Trading Account
There is however a key disadvantage of a small trading account that you need to be aware of. ¬†Whether you will suffer from this disadvantage is determined by your own psychological makeup.
One of the disadvantages of trading a very small account, is that there exists potential for you to not treat the small account with as much care as you normally would a larger account. ¬†You get lazy about searching daily for the opportunities, therefore missing some trades. ¬†You forget to set profit target, or you let a large profit evaporate very quickly. ¬†Perhaps you decide to break your risk rules and leverage up on a trade because you say to yourself that it is just a small account and it can’t hurt that much. ¬†You may not follow your trading plan as you just think it is a small account and who cares about a really small account?
There are many traders who just open up small accounts with multiple brokers and then swing for the fences with each account risking 20% a trade and hoping to catch a big move. ¬†That is a recipe for disaster. ¬†They risk that much because they believe that it is a small account so they never really “cared” about it.
And that is the risk you run with a small trading account. ¬†Depending on your personality, there are some traders that would do much better if they opened up a much larger account because then, and only then will they treat it much more seriously and execute their trading system flawlessly. ¬†They would do that because they know they have a huge amount of their own savings at stake and know they have to take it seriously.