Essential Small Account Trading Tips for Beginners

A few traders can handle well-funded accounts. The majority of them fail and lose all their money. This is where small account trading can be a better and less risky alternative. The main challenge here is that most newbies are stuck when they try to learn how to trade with small accounts. What they really can do is only to cover a needed margin.

You may think that small account trading strategies provide a simpler and less risky approach. That’s a common delusion. The concept requires extreme risk control, discipline, and comprehensive fund management. The problem about small account trading is a lack of buffer zone, which means traders have no right for mistakes. What’s more, a limited balance means zero chances for unexpected failures.

In this article, we will discuss how to trade a small account using leverage and different risk management approaches.

Small Account Trading Limitations to Consider

Before we start discussing essential tips, we need to clarify several crucial limitations you will face when applying small account trading strategies:

1. Small account trading is complex. You are wrong to think it is simpler than trading a well-funded balance. Traders do not have a backup in case of mistakes. Unexpected failures can lead to 100% loss leaving your account untraded until the next scheduled deposit.
2. Psychological issues. It can be quite tricky to know that you have no right to make a mistake. Some newbies can not stand the pressure and keep their emotions aside.
3. Trading limitations. Some brokers limit small accounts in terms of instruments’ selection, wagering requirements, and so on. For example, with a bigger account, traders have access to all available trading instruments. With a small account, you are likely to have access only to specific financial markets. So, the trading option is quite limited, which narrows down the implementation of a chosen technique.

Additional limitations involve the minimum amount of cash you are supposed to have. For example, the only way to legally borrow from a broker is to have at least $2,000 on the balance (the sum can change depending on the platform and place of residence). As for the United States, you must have not less than $25,000 on the balance to operate as a pattern trader or apply day trading strategies.

Tips to Use Small Account Trading Strategies

The above-mentioned limitations can make you think that small account trading makes no sense and will never generate profit. Well, that is not true. Many traders managed to apply the approach successfully. The following tips can help you finetune your approach.

1. Use Leverage

The first and foremost tip is to trade small accounts using leverage. It will let you access financial markets that you were not able to enter without having enough cash on the balance. Just make sure you clearly understand leverage and margin requirements

2. Apply Conservative Trading

Unlike traders with well-funded accounts who have a chance to make mistakes, which makes them feel more relaxed, small account traders usually act more cautiously. They always calculated their win-to-lose and risk-to-reward ratio to be used correctly. It is also a great chance to develop a well-disciplined approach.

3. Use the 1%-Risk Rule

The rule will limit the risk on any trade and limit the chances of losing down to 1%. The idea is quite simple. It does not matter whether you are about to enter a large or small position. You are never supposed to risk more than 1% of your account with a profit target aimed at between 1.5-2%. The rule has turned out to be one of the most effective risk management instruments for the majority of successful traders.

The Bottom Line

Many beginners think that small account trading strategies can never guide them to high profits. That is wrong. On the one hand, it is much more difficult to trade with a small account and have success. However, when applied correctly with proper risk management tools, it brings high chances to build wealth.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.