Tips for Trading With a Small Account
In most cases, people do not start out with a large trading account. This is not a problem. It’s certainly possible to grow an account that is less than $25,000. However, it does take knowledge and patience to do this. You also need to be prepared for hard work as trading us not an easy money-making opportunity.
The main thing to remember is that if you are trading with a small account, this does not stop you from becoming successful. However there are certain tips that you need to pay attention to, if you want to be successful and limit your unnecessary risks.
Take more risk per trade
If you have a smaller trading account, it’s important to make sure that each trade does more for you. This is why it makes sense that you should be okay with a risk of 5-10% of net capital in each position. This is vital, if you want to grow your account. If you are not good with taking on this level of risk, it will be difficult for you to grow your account significantly.
Make sure your capital is always working
There are account protection methods that are popular on larger trading accounts. However, these should not matter as much when accounts are smaller. It’s more important that you take advantage of opportunities, to allow your capital to grow.
For this reason, if you are trading with a small account, it’s important to concentrate on making your capital work for you rather than protecting your account. This means that at least 80% of your capital should always be working for you.
Do not waste “perfect” opportunities
When the data position that you have is strongly indicating a specific direction, and you have the benefit of a good entry price, you need to make sure that you take advantage. You should be prepared to invest up to 20% of your capital.
This is a time when you need to be more aggressive, in order to secure the best possible returns. If you do not do this, you are not going to get full benefit of the best opportunities that come your way.
Use option spreads to define maximum risk
It makes sense to use option spreads when you are trading from a small account. Doing this helps you to optimize the profits that you can expect while also minimizing the level of risk. This is a sensible step to take, if you want to build on your position.
Consider not using stops
For someone who is trading from a small account, it often makes sense not to use stops. This is because stops can take you out of a good trade and have an adverse effect on the trading profits that you make. You cannot afford for this to happen if your account is small.
An option that you may prefer to consider is to set price alerts. This helps you to take another look at the opportunity at a certain point, with a view to exiting, if it’s beneficial to do so. Doing this means that you can benefit from profitable opportunities without exposing yourself to unacceptable levels of risk.
Take profits when they happen
Profits should not be underestimated when you are trading from a small account. It’s easy to take a risk with a profit and watch it be eroded away.
Obviously, this is not financially advantageous, especially if your trading account is not large to begin with. Losing a profit in this way can also affect your confidence to trade. This is a serious disadvantage to any trader.
Automate the taking of profits
Emotions have the potential to affect your trading in a detrimental manner. This is why it makes sense to take the emotion out of profit decisions. The best way to do this is to automate the taking the profits.
This means that as soon as you enter into a trade, you should set an order to exit the opportunity as soon as your profit target has been met. Doing this helps you to make sure that your profits are protected.
Take care when selecting opportunities
Trading opportunities are common occurrences. Each day, you will have plenty of these opportunities coming your way. However, you cannot afford to attempt to take advantage of every opportunity.
You need to be able to determine which opportunities represent the best value. If you only choose the top opportunities, you stand the best chance of making a profit while protecting your capital.
Be disciplined
Traders need to have several different traits in order to be a success. One of these traits is the ability to make disciplined decisions that are not governed by emotion. If you are trading from a small account, it’s even more important that you have this trait.
The reason for this is that everything you do has a much larger impact when your account is small. Each wrong move can have catastrophic repercussions. If you plan effectively, and have patience in carrying out your planned activity, you reduce the risk of damaging your capital.
In summary
Whether you are trading in the US, UK, or in other parts of our globe, you should learn your way around, when trading with a small account, which is a whole different story than trading with a larger account.
If you are trading from a small account, you are amongst many other traders who are in the same position. This means that you should not see it as a disadvantage. However, you should also not be complacent.
You need to be disciplined and stick to your plans. When you are planning your actions, take into account the tips in this article. They can help you to trade successfully and reduce your risks should your trades not have the level of success that you are looking for.
You need to see trading from a small account as an opportunity rather than a disadvantage. You can learn skills and habits that are just as useful, no matter what size of account you have. If you see your position in this light, it helps to build your confidence, allowing you to make trading decisions that are rational, planned and backed by expertise that you continue to build on.
