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

This week’s Forex video lesson I  will teach you how to trade Forex 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 thank me later on as most of your backtesting will stop you from trading strategies that do nothing but lose you money. Your backtesting may also help you to find that some profitable strategies do not fit your personality.

For example, some traders will find that trend trading makes sense to them and therefore trending type of strategies would be very easy for them to understand and follow.   Other traders may see trends in the market and always be on the lookout for the trend to end. This would be more of a counter trend personality.  Counter trend traders look at trends and think the trend will end soon and therefore this type of trader would find it difficult to execute trades that attempt to ride the trend.  Trend trading on the surface looks easy, but after a trend has had huge gains it gets difficult to think about giving profits back,  A true trend trader would not have this dialog in their minds as the trend continues.

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

Step number two 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 important?  The reason that a trader wants tight spreads is that it lowers a trader’s 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

Step number three and four could be the two biggest reasons traders that have small accounts fail.  Use a stop loss.  There are many so called gurus that do not use stop loss orders, and they say they have a high win/loss ratio.  What these gurus fail to mention is that when they lose it’s likely to devastate their trading account and possibly end their career as a Forex trader.

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

Step number 4 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 would be to use a percent 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 .5% to 2% max per trade.  Most gurus say that you need to up the risk due to the small account size and I disagree. 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

Most gurus say that you need to up the risk due to the small account size and I disagree. 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 risk 10% per trade this would be $100 on the same $1,000 account size. If Trader B has ten losing trades in a row traders 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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