How to Trade a small Forex Account (Mistakes to Avoid)

Big journeys begin with small steps…

When it comes to Forex trading, the amount of capital required for trading is the first thing that strikes the mind. Not everyone is able to trade with a big account. In fact, it is highly recommended for the new entrants to trade with a small forex account. A person can start with as little as just$5 even. But remember that trading a small account requires a very special tactic. The strategy of trading must be based up on efficient risk and money management because there is no buffer against any kind of losses.

Features of small account
  • Allows using a trading lot that is one-tenth the size of the standard lot of 100,000 units.
  • Small accounts can only be used to trade markets with low margin requirements and small tick values.
  • Being limited in terms of trade management strategies; these accounts do not allow much flexible trading.
  • Useful for experimentation.

A productive trading strategy takes time to reap profits. A trader must not rush to achieve solid results rather put his time to learn asset management skills in a better way. The risks grow bigger as the amounts. Thus, adopt a rational approach and make sure not to get overwhelmed. At the same time, avoid the following mistakes to increase the potential return.

1. Don’t overtrade Overtrading inhibit the growth of your account as it is linked with the fear of missing out the trades. Day trading too often and with too many stocks amounts to disaster.

2. Don’t risk more than 1% of your forex account on a single trade Often traders increase their exposure hoping that market will continue to rise. Undoubtedly, it might bring larger profits but also enhances the inherent risk of that position.

3. Do not involve into rash trading Increase the size of your trade account only when you are absolutely ready for that and do it gradually.

4. Don’t tend to compare the performance of your account with the results of others.

5. Don't be too greedy to encash the profit It may happen that a new trader enters into a market and the price increases. Wait! Don’t sell your stock right away. Manage your winning positions even when the price reaches to your target. Selling too early may let you to miss out on bigger profits. At the same time, holding that position too long may convert that profitable position to zero. The best way is to maintain a winning position by selling half of it now and the rest later.

6. Don’t involve into irregular trading Using account for trade at irregular intervals may bring inaccurate and skewed results. Start trading the account on regular basis.

7. Don’t buy stocks without a trading plan Always involve into little research and check the previous performance of the stock in the market before buying. Check for the “top” of a stock. Find the resistance level to know where the buyers are leaving and sellers are starting to take over the stock. These plans helps to devise effective strategies based on your learning experience.

8. Admit your mistake when you make a wrong move After all no one can be 100% correct on his trades. The persuasion to let losing trades run in the hope that the market would soon turn can wipe huge profits. Cutting your losses at the right time and getting out of the mistake may save you from a huge loss. Remember the aim is to trade, not investment.

9. Don’t just focus on the hottest stocks Panic buying the hot stocks is risky and should be avoided. It’s right to follow strong stocks whose price is trending upward but just don’t chase them.

10. Don’t overdiversifying a portfolio too quickly Though diversification provides hedging and increases the exposure to potential positive market movements but it requires a lot more work which may not be easy for the new traders.

11. Don’t be overconfident after earning a profit Though the winning buzz encourages traders to move into another position to earn more profits. But this may potentially wipe out the recent gains.

12. Don’t ignore the volume of stock required Focusing only on the price action and ignoring volume while buying a stock is a major stock. Volume validates the price actually. Stocks can’t move on zero or low volume.

13. Don’t avoid a typical stock chart that looks mysterious Actually they show the precise history of a stock price. It reflects exactly what the market has thought of this stock. So always focus on such patterns.

14. Don’t ignore the technical indicators Take your profits when the indicators points that a trend is close to its top. Similarly do not enter into the trade yet the indicator give a signal that stock is ready to trade.

15. Don’t over-rely on software Though many of the softwares offer full automation and customisation to suit individual needs but they lack the human judgment. They are only as reactive as they have been programmed to be.

16. Don’t forget to maintain a journal of all trades either it turned out to be good or bad Take screenshots of the chart and the setup of each every trade. Note down your thoughts on why entered the trade and the consequences thereafter.

Tips to build up a small account:
  • Develop trading psychology and not let your emotions overrule your mind.
  • Adopt appropriate money management techniques.
  • Stay updated with latest happenings in the market.
  • Do not risk a big amount of money right away.
  • As the position of market is different every day, try to set daily profit goals.
  • Predetermine your risk. Set a risk-to-reward ratio between your target and stop loss. Set it between 1.5 -2.
  • Be flexible in your approach. Use multiple time frames to find out the best trades from good trades.
  • Learn to follow trend lines. Buy breakouts and sell breakdowns.
  • Be calm and focused. Don’t let your emotions overpower you.

Remember efficient trading is not about being a winning trader, but a profitable trader. Start trading with small accounts to reduce your losses and to try out new strategies with less exposure to risk. FX BROKER TOOLS offer the best support required to compete into the market. Our reliable trading environment, ranging from front-end trading platforms to liquidity solutions is immensely beneficial for the growth of a business.