Forex Trading Lesson: How To Trade Forex With A Small Account

In this week’s Forex video lesson, I will teach you how to trade the Forex market with a small account size. Forex trading should be treated as a business, regardless of a trader’s account size. So many new traders open up a Forex trading account with a couple of hundred dollars and expect to strike it rich and do so very quickly. If you have these thoughts and are thinking about trading Forex, then make sure to watch the video all the way until the end.

Step # 1 How To Trade Forex With A Small Account Size

The first step to trading Forex with a small account size is to trade in a demo account or playback like NinjaTrader offers. Prove to yourself that the strategy you plan to trade has a positive expectancy. Backtesting may not sound like the fast track to riches, but you will be glad you did it later on. As most of your backtesting will stop you from trading strategies that do nothing but lose you money. In your backtesting, you may also find that some profitable strategies do not fit your personality.

An example of this is trend trading. Some traders will find that trend trading makes sense to them and therefore trending types of strategies would be natural for them to understand and follow. Trend trading on the surface looks easy, but after a trend has had huge gains, it gets difficult to think about giving profits back. Other traders may see trends in the market and always be on the lookout for the trend to end. This mindset is more of a counter-trend personality. Counter-trend traders look at trends and think they will end soon and therefore this type of trader finds it challenging to execute trades that attempt to ride the trend.

Step #2 How To Trade Forex With A Small Account Size

Step number two is to find a Forex broker that offers tight spreads. The spread is the difference between the bid and the ask price. An example of this would be, EUR/USD Bid 1.06817 – Ask 1.06815 = .2 pip spread. Why is having tight spreads significant? You want tight spreads because it lowers your transaction cost. Remember what I said in the beginning, treat your Forex trading as a business.

Step #3 How To Trade Forex With A Small Account Size

Steps three and four are possibly the two biggest reasons why traders that have small accounts fail. They don’t use a stop-loss. Many so-called professionals do not use stop-loss orders, and they say they have a high win/loss ratio. What these professionals fail to mention is that if they lose it’s likely to devastate their trading account and possibly end their career as a Forex trader. So always use a stop-loss!

Step #4 How To Trade Forex With A Small Account Size

Step number four is to use proper position sizing. New traders that want to learn how to trade Forex with a small account size and avoid blowing up their account should use proper position sizing. One technique is to use a percentage of their account per trade. Here’s an example: Trader A has a $1,000 trading account and wants to trade Forex. I would suggest only risking .05% to 2% max per trade. While many professionals would tell you that need to up the risk due to the small account size, I disagree. By risking 1% on a $1,000 trading account Trader A should have a stop loss of $10. For Trader A to blow up his/her account, they would need 100 losing trades in a row. Let’s say Trader B risks 10% per trade, making their stop-loss $100 on the same $1,000 account size. If Trader B has ten losing trades in a row Trader B would have to refund his account to continue as a trader.

Forex Video: How To Trade Forex With A Small Account Size

 

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