4 things to consider when trading a small account

Most of us aren't lucky enough to have hordes of capital to commit to trading, in contrary most trading adverts that try lure you into buying services claim with small amounts of capital (I've seen ridiculous figures as low as $20) you can quit your job and trade from the comfort of your home.

Nothing can be further from the truth in these statements once you've experienced firsthand the realities of trading. Hard work, determination, persistence, patience and many more strong emotive forces will push you through the highs and more importantly the lows you encounter along the way.

If you were like me and started trading with a small amount of capital you're not alone, in fact it's a common reason why so many fail in their attempts at trading.  So I thought to share with you some important things to consider when dealing with a small account when you can't quite attain the level of consistency you desire.

Cost of doing a trade

Probably the most critical part of trading with a small account is the costs you incur executing a trade. Whether your broker is charging you a fixed percentage commission of the trade exposure or shading by using a spread you need to know how much it's costing you to transact because at the end of the day it affects your level of profitability.

A good example is some brokers charge a fixed percentage per trade but then impose a minimum commision that will be charged if your exposure is below a certain amount. The lower your exposure is below that level the higher the commission becomes and an increasing price level to breakeven.

Eg ABC broker charges 0.25% commission per trade but charges a minimum of $25 for trade exposure lower than $10 000. The total percentage gain in your favour to break even would be 0.5% however if you were trading with an exposure of $5000 you would need a gain of 1% to do the same thing. The less the cost to do the trade the higher the probability of you succeeding.

Discipline & Risk management

This follows on from the previous point in terms of wanting to make the trade efficient as possible but the trade off would then mean you would be risking more capital than what you should be, putting pressure on you both financially and mentally.

You have to come to the realisation that if you want to create consistency in your trading you have to actively employ proper risk management rules constantly which means trading with a position that may not be as big as you want. However you won't suffer the same fate so many others do when they ignore these rules and end up losing bigger than they thought.

Same goes for discipline, if you can't manage trading with a small account then how can you expect to manage a bigger one?  By practising discipline with a small account you are preparing yourself for when you eventually trade with a bigger account and won't have to reset the learning process every time you adjust your trading to a larger account size.

Focus on finding what works for you

You won't simply start trading and instantly make money as is claimed so you need to set aside a good amount of time to study markets behaviour and patterns that will give you the edge. This requires you to deal in the market with little to no knowledge in order to understand how it works but in doing so you are putting your trading capital at more risk since you are bound to hitch a problem in the process of your experimentation.

This is why using a small account keeps the losses to the minimum ensuring that if you do lose it all you aren't ruined financially.

Don't try succeed by overgearing

I've seen this happen so many times to traders who fallaciously believe that being successful in trading means turning over large profits all at once in an attempt to cut corners. Unfortunately there are no shortcuts when it comes to trading and success doesn't only rely on the amount of profit you can accumulate in a short span of time but more of an accumulation of good traits that prevent your ego from interfering with your decision making process.

Trading is about profiting in small amounts and being disciplined enough to hold onto those profits.