Trading Forex with a Small Account

Frequently, you will hear professional traders and others assert that you cannot enter the foreign exchange market with a small account and expect to do well. These comments are not being addressed to everyone, and it is important to understand that right off the bat. These comments are being addressed specifically to irresponsible and impatient traders, which unfortunately accounts for nearly all the traders who set out to try and earn money with Forex. Needless to say, most of these FX traders do not make it long.

What are the dangers of trading Forex with a small account? If you are starting out with a couple thousand dollars, you are going to want to grow that account quickly. This tempts a lot of traders into taking trades that are less than excellent setups and also into risking more of their bankroll than they should. The result is of course losses that compound quickly or slowly (usually quickly), and most of these traders blow their accounts very quickly. The majority never come back.

What needs to be pointed out is that you could enter the market with a larger account, say with $100,000, and you could still blow your account and wash out if you did not trade responsibly. There are plenty of traders who go in with all the resources they need to succeed except for patience and discipline. These traders wash out, while traders who may not have a lot of money but do have that patience and discipline are able to slowly but surely build their accounts and become successful traders who can trade currencies for a living.

If you are trading with a small account, there is no denying you are going to feel extra pressure to get things rolling. Here are some suggestions to making your new trading career successful and not blowing your account. First off, have a day job. You will not be able to live off of your trading while you have a small account. You absolutely must have some other stream of income if you ever expect to really trade for a living someday. Secondly, learn to respect the money you do have as if it represented more — because it is the potential for more. You might think, "If I had a million dollars, I would not feel pressure to take poor setups or risk a lot of money." Thirdly, you will need a broker that will allow you to deal in very small trading amounts, called micro-lots. This way, you will be able to manage your risks more accurately.

Just because you only have $2,000 does not mean that you cannot grow that money into a million dollars, but only if you trade it with the same discipline which you would if you did not feel pressured to race to that million mark. Since it also represents all you have to trade with, it is a lot of money for you. Likewise, do not forget there are billionaires who look at one million dollars and think of it the way you do about $100. There are lottery winners who blow their winnings inside of a year. It is how you treat your money and not how much you have now that is most likely to determine if you are going to end up rich.

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Forex trading bears intrinsic risks of loss. You must understand that Forex trading, while potentially profitable, can make you lose your money. Never trade with the money that you cannot afford to lose! Trading with leverage can wipe your account even faster.

CFDs are leveraged products and as such loses may be more than the initial invested capital. Trading in CFDs carry a high level of risk thus may not be appropriate for all investors.