Have you ever wondered why some brokers let you start trading with 10 dollars deposit and others raise the initial deposit level up to $100? Believe it or not, but the limit is actually set in order to protect your money. To lose 10 dollars is much easier without drama, than $100 or $1000, that's why some brokers do not offer to their clients the access to cent accounts - they simply do not want to lose them. Also, this limit prevents speculators from playing with charts and allows them to accumulate a substantial amount of money for successful trading.
Main article sections:
- Why small deposit hurts your interests
- How to save up for the deposit?
- Deposit boosting method
- Pyramid trading strategy, a method to increase your deposit
- Rational pyramiding
- Trading psychology matters
The size of a trader's deposit is very important since it allows to trade with fewer risks. Beginner traders often have no money for safe trading: a vast number of newcomer traders are students, those who live on social benefits, and unemployed. Their deposit is often too small, like $10, so they can't trade safely. They will have to risk more than 2% of their deposit amount, and that is considered unsafe. Look, the average intraday movement in the Forex market varies from 20 to 50 pips. When the trader enters with micro-lot, the risk is equal to somewhat between $2 and $5, which is 20% and 50% respectively from a $10 deposit.
If your trading experience seems more disenchanting rather than promising, ask yourself: is your deposit ready to protect you from unexpected market moves?
People say that a pessimist is a well-informed optimist. Remaining with empty pockets while trading is nothing new. Let's have a look at the worst first steps in trading:
- Start trading with $10 or so
- Start with borrowed money
- Spending utility savings for a deposit
All such inexperienced traders can think about is how to make a killing, but no one can trade wisely with that kind of trading psychology.
The main enemy of a trader at the start is greed. Ardent eyes, shaking hands and all that jazz. He wants to put up $10 right, but nothing works out. He bets 2, then 4, to get back those 2, after that the deposit vanishes, end credits, curtain fall. If you don't want to be disappointed in trading, remember:
- Do not make a deposit of your last or borrowed money.
- Do not expect anything from the market. You can't ask the market for obedience. No quick rise.
- Trading is a business, calculate the risks and keep on studying.
The only money you should use for trading is your idle money. You can save up by holding back your urges for spending money on restaurants and weekends.
In the beginning, you are likely to earn some money in Forex trading, but also likely to lose. That is why you should not rely on trading as much as you can rely on your main source of income - your job.
Tune in to long-term saving as for your own business start-up. Mental discomfort will fade away if you combine trading with work: you will have enough money for a better living. Set a goal, "Save $1000 for deposit", stick it on somewhere like a fridge or a desktop.
Smart trader says: "I save up 15% of my salary monthly". "Too long…" - groans the rookie, "...and so difficult as well. Want it quick and easy".
But this approach doesn't work in Forex trading, where successful traders have been mastering one strategy for years.
Is it the mindset to blame? The right mindset trader always trades with micro lots, managing the risk, practices trading on demo accounts, attends courses and buys subscriptions. Never gives up studying. He saves up for some time and finally enters the market with a solid deposit of hundreds of dollars.
"Easier said than done", - you'll say. Where to get $5000 for Forex trading deposit to trade safely? Sounds like a lot of money, but not for a business start-up, where $5000 investment is a usual thing.
If the deposit you have is not too big and you have traded net positive for the last 2-3 months, there is a way to accelerate. You need a bug-free trading system tested on a demo and live accounts, risk surveillance, $200-$400 for a deposit. We'll teach you how to boost your deposit.
Boosting your deposit is a fast but risky way to multiply your initial capital through some methods. Further, one of them will be presented in details. It is called "Pyramiding".
Please note, this deposit increasing/boosting method has nothing to do with a deposit boost with a bonus. Before we continue, pay attention to some sensitive issues of this approach:
- Remember that the risk while trading this method is higher than in usual trading. Pyramiding requires opening several positions (up to 5), so the usual risk (0,5-2%) multiplies with each position, respectively, and the percentage of the deposit that you risk in total reaches up to 10%. A higher risk rate is strongly not recommended.
- Don't double the risks if losses occur, it is not gambling.
- After increasing, or, let's say boosting the deposit until the desired limit, return to the usual risk level (0,5-2%). For example, if you started from $200 deposit and boosted it up to $500, it is better to stop. After that do not use this boosting method for some time, like a month or so in order to train yourself to acquire some emotional control over euphoria.
Notice: your trading system has to be profit-making for more than 2 months on both demo and live accounts. Starting your trading experience with deposit increasing methods is strongly not recommended. Knowing your system inside and out is very important to stay calm and reasonable during Forex trading.
The method is called "Pyramiding", because of its similarity with a pyramid, made of tiers narrowing upline. Imagine the pyramid is being built: a broad foundation, a more narrow tier, the more and so on till the top. Pyramiding method stands for adding up positions in the direction of the trend. In traders slang, pyramiding means trend refilling. This method has been used since the Wall Street era.
As it was mentioned above, the pyramid trading technique works by adding onto profitable positions. For clarity, if you start by buying 5 micro lots at one point of your chart and the market moves the way you expected, next you can buy 4 or 3, then 3 or 2 more. With every new buy, which should be smaller than the previous, move your stop-loss accordingly, taking the profit. That will help you not to expose yourself to big risks and secure the profits, adding up to your deposit step by step.
For example, EURUSD is in an uptrend and you have a trading strategy that gives you a buy signal. Look at Image below and read the paragraph, illustrating an example of pyramiding.
- You enter a buy trade with 1 contract and place your stop loss. That's your first trade now.
- Your trading system gives you a signal to buy so you buy another 1 contract, and you place another stop loss. This is your second trade.
- You move the stop loss of the first trade and place it at the exact same level where you placed the stop loss of the 2nd trade. Now you only have one risk, which is the risk on the 2nd trade. But you don't have any risk on the first trade.
- With the next buy signal, you enter the third trade. You place one more stop loss. So now, you have to take the trailing stop losses of the first trade and the second trade, and place them at the level where the stop loss of the third trade was placed. In that way, the 1st trade is locked in a lot of profits now, 2nd trade is zero risks and your only risk will be on 3rd trade.
To master in building up tiers, test yourself on a demo account.
Do not forget to take profit of the previous position, moving the stop-loss to the new entry. Don't be greedy: there are no strong and long trends in currency pairs.
Also, set the limit to the increase you are going to achieve. If you start with $200, stop when you have $400-$500. Make up a Plan B to consider the possible failure. Have a "nest" ready to refill the deposit. If you recover from the drawdown quickly you are unlikely to experience the negative emotional effects from the failure.
Many Forex traders believe this pyramiding can also work in limiting losses. It's wrong. Do not add to losing trades. There is only one right way to handle a position that has gone against you. Two simple words: get out. Then you take a step back and start over. Pyramiding down has a snowball effect that can be devastating.
Along with the confidence, gained from the cases of successful trading, inflated expectations often come. Leave the job and trade all day is a trader's dream. Since the income is supposed to be received only from trading, the decision to leave the job may turn out to be a poor choice.
Your trading decisions will be controlled by the anxiety of losing money for living and such stress is not something that will motivate your trading. These three steps will help you to make everything right:
- Realize that trading is a time and money consuming business. Save and trade, don't quit the job. Save up $100-$200 and trade micro lots.
- Choose one trading system. Work with the trend, to be able to apply the pyramiding method. Record statistical trading data for 2 or 3 months, to see how the trend and your trading behaviour change.
- Decide whether you need pyramiding. If you save consistently and have steady results, maybe you do not need pyramiding at all. Anyway, if you use deposit boosting, do not risk more than 10% of the deposit and do not try to recover your losses immediately.
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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.