8 tips for growing your small forex trading account
One of the many benefits of trading the forex markets is the simple fact that the barrier of entry is very low. Most brokers are willing to accept traders with just $100 minimum deposits. On top of this, very high leverage is offered of up to 1:500. This typically leads to traders coming into the forex markets with very small trading accounts. With small trading capital, the profits are also very small. This isn’t going to be sustainable for the long term, so you need to grow your trading capital.
In this article, we are going to look at 8 tips for growing your small forex trading account to a meaningful size!
Let’s get into it…
1. Have A Fixed Risk Per Trade (In Percentages)
Beginner traders are often not too well versed in risk management, one of the fundamentals of investing in any market. One of the core principles of risk management is fully understanding what the trade will cost you, before entering. To accurately work out what a losing trade is going to cost you, you need to be aware of the currency pair, the stop loss in pips, the account size, and the percentage you’re going to use. When entering any forex trade, you should be going in with a fixed stop loss/risk. This means you cannot lose your whole account, or even more than you’re expecting to lose. Working in percentages, rather than money, is an accurate way to measure this and ensure that your risk is being accurately catered for. The industry standard for retail forex traders is to risk up to 1% per trade.
2. Ensure All Trades Have A Positive Risk To Reward
Understanding your expected risk to reward ratio is crucial if you’re looking to grow your forex trading account. You need to ensure that your average risk to reward is positive, rather than negative. It’s very simple to work out a risk-to-reward ratio. For instance…
50 Pip Stop Loss
150 Pip Take Profit
This is a 1:3 risk-to-reward ratio. Meaning, if you are risking 1% of your trading account balance in this setup, you’re going to net around 3%. Of course, it’s not always easy to predict where the market will go, and sometimes this ratio is a lot more fluid. However, it’s always important to avoid trades with a negative risk-to-reward ratio and focus on those that appear to be positive. When growing a small forex trading account, the higher the risk-to-reward ratio, the better. I’d recommend only taking trades with a minimum of 1:2 RR. Anything lower is not going to be worth trading over the long term.
3. Compound Your Trading Account
Compound interest is one of the wonders of the world. If you’re unsure of what compounding means in forex, it’s essentially not withdrawing your profits and keeping all the money in the account. This means that as it accumulates, you’ll earn more money per trade. For instance, with a £1000 account…
Trade 1 – 1% Risk, 50 Pip Stop Loss, 150 Pip TP. This would bring in 3% profit, meaning £30.
Trade 2 – 1% Risk, 50 Pip Stop Loss, 150 Pip TP. This would again bring in 3% profit, meaning £30.9.
This is a very small sample size but if you compound this over hundreds of trades, the difference is exponential and this is crucial if you’re looking to grow a small trading account. This rings true whether you’re on a funded trading account, or your personal trading capital.
4. Pyramid Winning Trades
When learning risk management, you may or may not stumble across a term called Pyramid. This is where you add positions into winning trades and avoid doing so in losing trades. It’s much more complex than it seems but in essence, this allows you to minimize losses in your trading account, whilst growing the risk to reward on the winning trades as you’re only playing with profit in the market.
Here’s an example…
- You enter a long on EURUSD, with a 50 pip stop loss, £100 risk. You’re expecting a rise of 200 pips, bringing you a potential gain of £400.
- The trade hovers, then moves to the upside, and is sitting at roughly 50 pips in profit.
- You move your stop loss to break even, on position 1. Now your risk in the trade is £0, even though you were willing to risk £100.
- You enter another position, risking £100. As position 1 is covered, you now have more capital in the market, but still only £100 risk. If full take profit is hit, you’re gaining another £200, with no additional risk.
- Rinse and repeat.
Again, it’s not this simple but in principle, this is how pyramid entries can be used to rapidly grow small forex trading accounts.
5. Utilize Prop Firm Funding
Online prop firms are a great way to help grow your forex trading capital. Let’s take Lux Trading Firm, for example… We fund our traders up with $15,000 in real trading capital, initially. Once profit targets have been hit, this is scaled up to $10,000,000 in forex trading capital. The benefit of using a prop firm is that you keep 75% of what you make! For instance, you start trading as one of our Elite Trading Club funded traders, with $15,000. You make 5% in your first month. You’ll be withdrawing $560 in that month!
Now let’s take this at scale…
You have $200,000 in prop firm funding. You’re averaging 5% monthly, resulting in monthly withdrawals averaging $7500. At this point, you’re putting that $7500 per month back into your personal forex trading account, separate from the funded trading account. You compound the same 5% monthly gain here, as in the Lux Trading Firm funded account… Very quickly, you start reaching very large profits and very large withdrawals, even whilst starting with small trading capital. If you’re interested in hearing more about how prop firm funding works, have a read!
6. Trade The Lower Time Frames
By trading the lower time frames, I don’t mean the 1-minute and 5-minute charts. However, by trading the ‘day trading’ time frames such as the 1 hour and the 4 hours, you’re likely to be able to keep trading frequency in a good place. Although great for huge volumes of pips, the daily, weekly, and monthly charts don’t yield many good opportunities each month. Ultimately, whilst trying to grow your trading capital, trading frequency is important, and the lower this is, the longer it’s going to take you to succeed, so it’s worth looking at building strategies for the lower time frames.
7. Track Your Trading Data
Looking at your trading data at a holistic level is crucial if you’re looking to quickly grow your small trading account. I feel confident in saying that the majority of forex traders aren’t aware of their statistics, metrics, or even profitability within the markets.
Well, they never looked!
There are plenty of easy ways to check your trading data, the most popular being MyFxBook. This allows you to see a range of data points including losses, wins, profitability, drawdown, profit score, and risk of ruin. By being armed with this data, you’re able to faster scale your trading capital and aggressively grow by doubling down on what works, whilst managing risk.
8. Avoid Overtrading
Overtrading is the term used for taking too many positions and opportunities in the forex markets. When you see profits coming in, it’s obvious that you would want to increase this and get involved in more opportunities. This also rings true when you’re a profitable trader having a quiet month. If there are few trades coming into the markets, you’re likely to get impatient and start forcing setups. This is a surefire way to blow through your profits and give back to the market. If you’re serious about growing a small forex account, you must not overtrade. The easiest way to gauge whether you’re overtrading is to analyze whether you’re taking trades that don’t match your trading plan. If you are, you’re overtrading.
In Conclusion – Growing A Small Forex Trading Account
These 8 tips are some of the most important things to consider when you’re looking to grow your small forex account, to something much larger! If you have had any success in growing a small trading account, we’d love to hear from you in the comment below with any pointers you could offer.
If you’re interested in working with Lux Trading Firm and taking on a funded trading account, please get in touch now!