Not every trader has the luxury of starting the trading journey with a big forex account. Does it mean that traders with a small trading account can grow their accounts? Yes, they absolutely can. Through the right risk management rules and good investment decisions, a small account can be turned to a bigger one.
The following tips will show you how to grow a small forex trading account without taking any unnecessary risks. But first, let’s talk about how much you should have in your trading account to start with.
How Much Should You Have in your Forex Account?
The answer to this question depends on how experienced you are and your investment goals. If you are starting your trading journey, then you should only trade with a capital that you don’t really need. The main reason is that it will take away all the emotional engagement from your trading. But if you are experienced in forex trading and you know how to do it, then it will be better to increase the size of your trading capital. Check also What is the Right Amount Required to Start Forex Trading?
How to Grow your Small Forex Account
1. Don’t Withdraw from your Account
This is the initial advice and it is very important. Never withdraw money from a trading account that you are trying to grow. It interrupts the main purpose of what you are trying to do. You have to keep your capital and profits in the trading account and let it keep growing.
As we mentioned earlier, the investment capital in your trading account should be money that you don’t need so you won’t mind keeping it in the account for a while. Maintaining this discipline with your trading account will keep you on track with growing your money.
2. Gain Live Trading Experience
One of the best traits you can get with a small trading account is the live experience. Although you may start with demo trading at first to get acquainted with your trading platform and understand the basics of trading, switching to a real account is a total advantage. It will teach you how to control your perception of the market, leading to better trading activity and outcomes. Open a forex account in few easy steps and get started with forex trading.
Unlike trading on a demo account, live trading triggers a range of emotions that will change your trading experience. Emotions like fear and greed will only be experienced once you start risking real money, which will make you a better trader by learning how to control those emotions.
The best way to overcome the fear of risking money is by gaining a proper trading experience and defining trading rules. When you have rules, known as the trading plan, you know exactly when to enter and exit a position, control your emotions and limit your risks which should significantly reduce your fear.
3. Learn from the Mistakes, They Cost a Lot
When you are trying to grow a small trading account, you want everything to go according to your plan as much as possible. But in a volatile market like the forex, prices may not move according to your analysis and you will incur a loss from time to time. That’s totally normal. You cannot control the market but you surely can control your actions.
No matter if you’re trading with a big or small account, you should always stick to your plan at all times. Trading mistakes cost a lot, so try to avoid them at all costs by learning discipline.
Of course, you will make mistakes as a beginner but you should learn from these mistakes and avoid repeating them. Learn more about common trading mistakes made by beginner traders.
4. Avoid Overtrading
It’s easy to fall into the trap of overtrading while trying to grow a small trading account. Overtrading is opening multiple leveraged trades with high sizes seeking higher profits, but this, unfortunately, can lead to high trading losses as well. When traders have a limited budget for trading, they often try to compensate for their small account size by taking over-leveraged positions. Unluckily, that’s the perfect recipe for trading failure. Taking too much unnecessary risk will inevitably lead to bigger trading losses.
5. Set your Risk Per Trade
One of the most important rules to grow a small trading account is to clearly set your risk management rules. Without a proper risk management plan, there is a higher chance that you’ll blow your trading account, whether it’s a small or big one. Risk is inevitable in forex trading and is the only thing that traders have to control in order to minimize losses.
One option to minimize trading risks is setting a risk to reward ratio that controls how much you put at risk for every trade. Try to stick to the 1% common risk rate per trade. Consider a proper risk-to-reward ratio of 1:2 or 1:3, meaning that potential profit should be triple or at least double the potential loss on the trade.
Check also 10 Steps to Manage Trading Risks Effectively
Make sure that you follow a set of risk management rules to minimize the effect of risks and increase your profits. It’s smart to set your risk management as soon as you start trading on a live account. As your account grows bigger, you’ll be sufficiently experienced to control larger position sizes without fear of risks.
6. Follow the Trend
Following the trend is a common approach that works effectively. Identifying a trend early can help in gaining safe profits. Make sure to stay on the trade as long as the trend continues. This works for both large and small accounts. Read the full article on trend analysis and how to make use of trends in forex trading.
Ideally, when trading on a small trading account, you should look for trends that have the potential to be more sustainable. This means identifying the trend-reversal and choosing the proper entry point with a reasonable risk-per-trade and an attractive reward-to-risk ratio. Learn more about how to carefully choose entry and exit points.
7. Calculate Trading Costs
Growing a small forex account can be centred around following a good strategy, keeping emotions in control, sticking to a trading plan at all times, and making a constant profit. But, after working so hard for a profit it won’t be good to give away a big portion of it. That’s why it is very important to keep your trade costs to a minimum.
Calculating the trading costs is even more important when you are trading with small capital. You have to consider choosing a forex broker that offers minimum chargers with tight spreads. This way you can keep costs low and maximize your profits.
8. Know the Market
Enhancing your knowledge of the market is very critical in making your trading more successful. Without knowledge, it is total gambling. While knowing how the market works, what to trade and how to trade makes all the difference. To grow a small trading account, you have to be aware of the characteristics of the forex market and try to make use of them. For example, trading major currencies can be more stable compared to exotic currencies that are known for high volatility. Also knowing that some trading sessions enjoy higher liquidity than others.
9. Do your Analysis
Regardless of your trading strategy, analyzing the market is very critical in making successful trading decisions. In forex trading, there are two common types of analysis; technical and fundamental analysis. It’s always up to you to choose any of them or mix both. If you are growing your forex account, you have to make sure that your trades are based on price analysis.
It is good to follow market fundamentals but always wait for confirmation from technical levels before entering into a trade. Technical analysis is more powerful in identifying trading levels. There are technical levels which, if broken, the overall picture is shifted from bearish to bullish, and vice-versa. Without detecting exact price levels for your trade, it’s impossible to control risks or determine whether the analysis is right or wrong.
10. Trade only High-Probability Trades
Traders with small accounts cannot afford the luxury of trading ordinary trades. So, it’s advised to trade only when the analysis shows that the trade has a high probability of success. Identifying a high-probability trade depends on your trading strategy, but make sure to have a process in place to rank your trades from low-probability to high-probability. This may include fundamental and technical factors for a clearer picture.
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