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The foreign exchange market (Forex market) is one of the most accessible financial markets globally. Forex traders can start currency trading with an initial investment of as low as 100 AUD or equivalent with FP Markets. However, the amount of money you start with can determine your success and ultimately influence your trading experience. Consequently, just because you can begin trading with 100 AUD does not mean you should. Depending on your financial situation and trading experience.
Alternatively, particularly for newer traders, you might want to consider starting with a demo account; this lets you familiarise yourself with the platform and test your strategy in real-time market conditions without putting any money at risk. Most Forex brokerages offer demo accounts. As with a live account, using a demo account will require you to select your trading software; most new traders use the MetaTrader 4 platform (MT4)—a good all-round trading platform which, depending on your broker, caters to a wide array of currency pairs: EUR/USD and USD/JPY, for example.
The minimum amount of money you start with should relate to your goals. For example, do you want to generate a full-time income with FX trading? Or are you determined to grow your small account regardless of the time required? When dealing with a smaller trading account, understanding your mindset and your Forex trading strategy is crucial (this relates to any account size). Traders should also always take account of their trading capital (account equity) when determining how much risk they are prepared to accept.
So, let’s look at some tips for growing a modest trading account.
- Learn From Mistakes
You will inevitably have losses. Stick to a sound trading plan to limit downside risk. Look back and analyse where you went wrong on losing trades and adjust where necessary. The main point is that a smaller account allows for mistakes without breaking the bank, shall we say. It also allows you to develop as a trader, building your account slowly and familiarising yourself with risk levels as the account grows.
- Maintain an Accessible Record of All Trades
A trading diary (journal) maintains a detailed record of your transactions’ past performance and system configuration. Additionally, keeping a trading journal enables you to reflect on your trading style, giving you a reference point when it comes time to assess future trading opportunities.
The journal should be large enough to allow the level of detail required to preserve all pertinent trade information. Furthermore, keeping an organised trading record will enhance your confidence and circumvent overtrading.
- Risk Management
Risk management is a crucial aspect of trading and investing, irrespective of the account balance. Aside from operating with protective stop-loss orders, another option is setting a risk to reward ratio for each trade.
The main point is to emphasise risk management as it can essentially ‘make or break’ you as a trader. You can have the perfect strategy, but void of risk management, it’s doomed to fail, if not now, then in the future.
- Follow the Trend
One approach with a small account is to follow the trend. Education and practice come into play, and dedication is paramount, as with all trading education. Even traders with years of experience never stop learning. Yet, do remember that a trend-following system requires patience and can see trades held for lengthy periods.
- Calculate Trading Costs
Choose a Forex broker that offers minimum charges with tight spreads. FP Markets is a leading competitor in the CFD and Forex arena.
- Know Your Market
‘Rome was not built in a day’ and neither will your small account be. Knowledge will help you understand your market and ultimately form another part of your risk-management profile. Losing money due to a lack of knowledge is unacceptable. Know your market. Do the work required.
Analysis of the market generally consists of technical or fundamental analysis or both. Price analysis is a popular approach within the technical field. Without initially mastering the principles of technical analysis, it can be difficult to understand how price moves in longer timeframes and shorter intervals.
Benefits of Small Trading Accounts
Trading with a small account will provide a beneficial experience that teaches you vital trading lessons, including adopting risk-management methods and adherence to a trading strategy’s rules of engagement.
In brief, a modest account allows you to gain familiarity with the market and your trading platform’s features. Additionally, it provides a reasonably safe harbour for dipping your toes in the water and learning from your mistakes without facing disastrous repercussions.