How to trade Forex with a small account balance

by tradefredAdmin on
Thu, 11/01/2018 - 13:33
We outline some key points to consider when trading Forex with a small account balance

There was once a time when Forex trading was reserved solely for large multinational corporations and the super-rich. This all changed with the creation of online exchanges, which enabled retail traders to join the elite and experience the world of investment for themselves.

Most online brokers, such as TradeFred, will let you open an account with a small initial deposit so you can start your investment journey without risking too much capital. It also gives you a good opportunity to learn the basics and develop your strategy.

A common issue for most traders is how to turn that small investment into a larger sum of money and keep growing their balance from there. With this in mind, we have come up with a few points to consider. While of course we cannot guarantee success, following these rules should give you a better chance of making more informed decisions.

Why start small?

The first point for discussion is why you should bother with a small balance in the first place. As the saying goes, you have to speculate to accumulate – so do you not have to spend big to win big?

A simple answer to that is no. Starting with a small account balance will force you to practice discipline and money management – skills that will not only help you maximise any profits you make, but also minimise your losses.

By using these techniques alongside your own knowledge and skill, you should slowly be able to build up your account balance to become a lot more healthy than your initial investment. Of course, you will need a lot of patience to achieve this, but it is important to recognise that successful Forex trading is not about making lots of money fast. Instead you need to be prudent with your funds and know when and how to make your move.

Another reason to start small is the fact that you are limiting the amount of capital you are putting at risk. While you should have already devised your trading strategy with a free demo account beforehand, nothing can truly recreate the pressures associated with putting your own money on the line. Having a small balance will therefore alleviate some of the stress and allow you to focus on the basics.

Choose your moves

Starting with a small account balance means you will have to be very selective with your trades. Rather than spread your money far and wide, it is better to wait for the right opportunity to come along and use your skill to get in and out of the trade at the perfect moment.

Most beginner traders will end up losing their money because they feel they need to constantly be involved in the markets and try to “force” profits. By failing to understand the necessity for patience and discipline, they will instead believe that constant investment is the right way to be in control – not realising that the more you try to control Forex, the more it will actually control you.

In contrast, the more you practice patience and money management, the more your confidence will grow as you see your account balance increase. When this happens, you will realise that your discipline has paid off and will be more likely to continue this approach in the future.

Money is no motivator

This may seem like a strange point at first, seeing as though the majority of people get into Forex trading in the hope of making money. If you are investing with a small account balance, however, profits and earnings cannot be your initial goals.

Instead, you will need to be motivated by honing your skills and adopting proper trading processes such as the aforementioned patience and discipline, but also following your investment strategy to the letter. By focusing on your method of trading, you can learn the key attributes for success that are important for all investors – no matter the size of their account balance.

You should also remember that not all of your trades will be profitable, which is where risk reduction comes into play. If you do end up losing money, it is important not to have the mindset of recovering your losses at all costs – as this will only lead to you making poor decisions and putting even more of your capital in danger. You should instead look at the reasons why you made a loss and see what you can learn from your trade to try and prevent a similar thing happening again.

A little progress is still progress

Sometimes Forex trading will feel a lot like you are taking one step forward and two steps back, perhaps making you a little impatient. If you are investing with a small account balance, this could be even more frustrating as you believe you will never end up building your account.

It is therefore important to recognise whatever progress you make, no matter how small. Even if you come out with a $50 profit each month, you are still making money. All the while, you will be picking up the necessary discipline and experience to in time open bigger positions and perhaps achieve higher profits – but only when you feel the time is right.

Consistently making a profit, even a small one, will also build up your confidence and keep you on the path to becoming a good trader. This is extremely important, as you should always be 100% sure of yourself with every investment you make.

Think like a professional

Most new Forex traders will start their investment journey with the mindset of wanting to make a lot of money. Instead, however, they should focus on how they are going to achieve it. By doing this, you will be more inclined to learn how to trade properly and develop a successful strategy.

Rather than trade as though you need to make money, think like the professionals would do and pretend you already have a large account balance. Then the focus will shift from constantly having to turn a profit, to protecting the funds you have and building your account over time.

By changing your mindset from the money to processes, you will learn all the necessary skills adopted by professional traders. As we said before, profits should not be the main motivator – as you should instead focus on the things that will keep you trading for as long as possible.

If you are constantly chasing profits, you will become more likely to make rash decisions, which will ultimately cause you to crash out of the markets completely. You should instead think and act like a pro, as these qualities will ensure that even if you do end up making a loss, you will still be able to live to fight another day.

Successful Forex trading is all about learning how to invest. Without this knowledge, you will never be able to consistently make a profit – so all the money in the world will be no help to you whatsoever. Start small, understand the basics, and you will give you the best possible chance of achieving your goals.