Almost everyone who is interested in day trading seeks to trade using a fully funded trading account, which they can use to bring out their creative investment side. But, the reality remains that not everyone will be able to do this. Especially if you’re just beginning with trading and stock market news, there is a very high chance that you only have a small account available to you to work with.
Unfortunately, if you must trade with a small account is require a lot of money and risk management on your part because not so much buffer is available to help protect you against any unexpected mistakes or losses. However, the good part of the story is that it is not an impossible thing for you to trade with a small account all you need is the right strategy.
What you must know about trading a small account?
You might already know that trading a small account is a lot tougher than trading a large account this is because larger accounts enjoy the buffer they have against possible unexpected losses and mistakes. Also, for new traders trading a small account can lead to a lot of stress especially for those who are not used to working with a trading strategy that is complex. Knowing fully well that you can only afford to lose a tiny amount before it becomes impossible for you to access your account, there is no way it won’t take a toll on your psyche.
There are some ways you can reduce the stress and discomfort that comes with trading smaller accounts, and one of those ways is by using leverage. What this means is that you can trade in a market that you might not be required to trade in using cash. Take for example if you were to trade in individual stocks it would require you to use up to 30% of your trade value in stock, but if you decide to trade the same stock in the options market, you will only need 15% of that trades value.
Ways to reduce possible risks with smaller accounts
With all the risks linked with trading in smaller accounts, one might assume that the only way to really make the best of day trading would be to have a well-funded account. Nevertheless, as long as you are willing to stick to your plan strategy you should do just fine. It is true that traders with 1200 accounts have the luxury of the ability to make more trades with a higher amount of risk, but that doesn’t mean that with smaller accounts you cannot make a significant profit. All that you have to do is be cautious with your trades.
make sure that you are correctly calculating your risk to reward and win to loss. It is also essential to think whether or not to stick with the rule of 1% in your trading account. what this means is that you must have a small amount of buffer in your trading account. In many environments, the 1% rule is a famous trading strategy regardless of what the size of the trading account may be.
Well, some traders have been conditioned to believe that it is impossible to trade underfunded accounts properly, that is not always the case.
Smaller trading accounts might be more difficult and challenging however if you have plenty of patience coupled with the right skills you just might be able to win out on your trade. You just have to ensure that you provide a plan to help you manage the extra stress and threats associated with operating smaller accounts.