Small Account Trading
One of the most significant differences between retail traders and institutional trades or professional traders is the size of their trading accounts. And this makes for massive differences in the way these traders will have to address their situations. Still, at the end of the day, mathematics teaches that these accounts’ differences cannot be overcome.
Everyone must understand that there is a vast difference between trading a $10 million account and a $1,000 account. So, the average retail account in the United States is near the $2,000 level, and other countries might be much lower. Unfortunately, this is because forex has a reputation of ‘get quick rich scheme’ by the layers and layers of people who have an interest in taking traders’ money, in one form or another.
But traders can indeed make money much faster in the forex markets compared to many others. And this is due to its leverage and markets that tend to trend for a very long time. It’s quite typical for a currency pair to trend for three years at a time. However, mixing it with leverage is a good and a bad thing.
The most obvious advantage in trading a small account is that traders do not need to worry about moving the market against them if they enter and exit in it. If traders are trying to close out a 10,000-unit position, they will be in trouble doing so about any price. But if traders try to trade 100-million-unit position, it’s a whole different story. With that, the small trader has much more flexibility when it comes to placing a position on and off.
One more advantage is that it shouldn’t be a crucial mistake in life if they get wiped out. After all, an average person trading currencies can handle wiping out an account if it’s small. However, the biggest problem they are going to have to link to their financial situation. Let’s say a trader has a net worth of $3,000 when trading and have a $1,000 account, that might cause an issue. With that, the statement of a ‘small account’ comes down to an individual situation.
Another benefit of trading a small account quite often is that traders will receive offers with larger amounts of leverage at their broker. Thus, it does give them a chance to make more money with a small input. However, the issue here is having high leverage means the risk is high too. But having said that, if they are risking a few hundred dollars and it does not make any difference in their livelihood, the risk might be advantageous.
There are many disadvantages to a small account. The most common is that it would be challenging to make the rewards worth the time. Anyone who makes $100,000 a year will not be exciting to gain $100 at the end of the same year through trading. And this all comes down to patience and how long it can stretch out – most people can’t. And this is why a lot of small traders have major issues as the lack of significant rewards makes it hard to remain focused. So, this results in over-trading or over-leveraging their positions.
Depending on the account, some might not weather the storm of a major pullback or timeframe that highlights a lot of volatility. And this is because their stop losses will have to be too small. Aside from that, they may continue to over love themselves, believing things along the lines of ‘I only need to take a few crazy trades, then I can trade normally after I have built up my account a bit.’
Nevertheless, this is bound to backfire. The emotions of seeing a huge swing in the profit and loss column will make traders make bad trading decisions. And even if they get a sudden burst and the ability to make a massive game, traders can rarely cut back their position size after winning like that. Eventually, greed will take over, and the broker gets all the money.