Everyone interested in day trading wants to trade with a fully-funded trading account, which they can use to let their creative investment side shine through. However, the reality is that most people simply won’t be able to do this. Particularly if you’re just getting started with trading and Stock market news, there’s a good chance that you’ll only have a very small account to work with. Unfortunately, trading with a small account requires a lot of risk and money management on your part, because there’s not a lot of buffer to help protect you against unexpected losses or mistakes. The good news is that it’s not impossible to trade with a small account, you just need to have the right strategy in place.
What to Know About Trading a Smaller Account
Trading a small account can be a lot tougher than trading a large account because larger accounts are buffeted against mistakes and unexpected losses. Additionally, trading a small account can lead to a lot of stress for new traders who aren’t used to working with a complex trading strategy. When you know you can only afford to lose a small amount before your account can no longer be accessed, it’s sure to take a toll on your psyche.
One of the ways that people can reduce the stress and discomfort associated with trading a smaller account is to trade using leverage. This simply means that you can trade in markets that you might not be able to trade in using cash. If you were trading in individual stocks, you’ll need up to 30% of your trade value in stock but trading the same stock in the options market would only require 15% of the trade’s value.
Ways to Reduce Risk with Smaller Accounts
With all the risks associated with trading in smaller accounts, it might seem as though the only way to really make the most of day trading is if you have a well-funded account. However as long as you’re willing to stick to your strategy, you should be okay. Traders with well-funded accounts do have the luxury of being able to make more trades with higher amounts of risk. However, with a smaller account, you can still make a significant profit, you’ll just have to be cautious with your trades. Make sure that you’re calculating your win to loss and risk to reward ratios correctly. It’s also important to think about whether you should stick with the rule of one percent in your trading accounts. This means that you have a small amount of buffer in your trading account. The one percent rule is a popular trading strategy in many environments, regardless of the size of a trading account.
While some traders believe that under-funded accounts simply can’t be traded properly, this is rarely the case. Smaller trading accounts might be more of a challenge, but if you have the right skills and plenty of patience, then you can win out on your trades. Just make sure that you have a plan in place to manage the extra threats and stress associated with smaller accounts.
Maja is a talented writer and content editor at TheFrisky, with a diverse range of interests spanning from the arts to gardening and interior design. A graduate of the Faculty of Arts, Maja brings a unique perspective and a passion for creativity to her work.