Forex Myth Debunked
introduction
As a new trader, you might already have seen people say that you need to have a huge capital to start trading. Some will even state numbers you have not yet in your account let’s say $50 000. Others will stay that small accounts are doomed to crash.
This myth can be very discouraging for many new traders even before placing a single trade. They will assume that this market is not accessible if you are not already wealthy. It can be extremely frustrating when you want to get you, and potentially your family, out of a situation where you need the money.
In this article, I will tell you otherwise. Note that I will not guarantee you any success or even that you will even make a living out of trading. I will simply explain you, why this market is accessible to people with smaller starting capital.
The Myth
It goes a little like “you need at least $25 000 to make money in Forex” or even “small accounts are just getting picked clean by the brokers. People carrying that message assume small profits are meaningless if they are not big numbers from the start. It is also sometimes believed that professional traders are only successful because they started big.
On first sight, it feels really logical, 5% of $100 is only $5 while 5% of $100 000 is an interesting $5 000. This line of thinking does confuse the outcome with the process and most importantly the scale with the edge.
Why This Myth Is Detrimental
That myth is detrimental for a few reasons, let me explain.
It might prevent some traders to start because they are waiting for a big amount of money to come in. Not really taking the time to learn first can be setting you for a bad start.
That myth is at its most dangerous when it creates reckless behavior. I truly understand that it is hard not to use big lot sizes when you have a small account. I have been there. However, this having a bad mindset and most importantly not knowing how to do money management.
It also make people believe that their success is only depending on their wealth and not their competence. No matter how much money you have, you will be the same trader, taking the same decisions. So if you are not a profitable trader, you will remain such no matter the size of your account.
I can’t stress this enough but, the best successes are not made overnight. Don’t get me wrong, I will be happy for you if you succeed overnight. Except if you want to keep trading in the long run, you better hone your skills because overnight successes can become awry overnight.
New To Trading?
If you are building your foundation as a trader, this kind of content comes in handy when your framework is already structured.
In my Essentials Of Trading course, I am offering a solid base and foundation to start a successful trading career. You can start Here:
The Truth
Here is the clean and simple reality:
You do not need huge capital to start trading.
You mainly need a good mindset, a structured process and risk management.
You capital affects the scale of your trades and not the viability of your system. I would even recommend for new trader NOT to start too big. I would only start with an amount around 500$ to start with so you can hone your psychology over time.
A trader with a proven statistical edge, proper money management, consistent execution and that controls his drawdown will end up with consistently more money in his account. You need to make yourself and really demonstrate that your own system works, day in, day out before putting any serious capital in that market.
How To Start Trading With A Small Account
Here are a few tips to help you reframe that into a possible success story.
Redefine what “success” means to you. It should not be monthly income, quitting your job or compounding your profits aggressively. Your success is coming from following your rules, controlling your drawdown, journaling to improve and keep a track of your journal and most importantly, keep your mindset sharp.
It may be a good idea to move your focus from pure dollar amounts. Considering a pips number or a percentage of your account size might be beneficial to start. Let’s say you achieve a 5% better profits than last year, that is fantastic! Let’s say you achieved a 1 000 pips within a month, these are amazing numbers!
A small account should, in my humble opinion, be the logic step immediately following a successful demo account. It will do wonders to how your psychology evolves and grows.
How Algorithmic Systems Help You
From the kind of trading I do and teach, huge capital is not a bare necessity.
The most important is the statistical edge over the market. This means, for example, that if you have a payoff ratio over 1, you need a win rate of 50% to make money. The classic payoff ratio of 2 for 33% win rate minimum work great too even tough I believe you can make better than that.
A small account is key to validate the viability of your system. As you deploy a new algorithm to your account, you want to start small to keep gathering data on it. Starting with a small account is a great way to make that first demonstration of success. If you happen to have a big account, I will still recommend to use smaller risk percentages in the first months to make sure you are comfortable with the way the system behaves.
A good algorithm will always include the risk management percentage as a base rule. This means that it will scale down to any starting point, to an extent. Let’s say your trading altcoins, you might need a $100 to start trading as with Forex, it might be $500. It all depends on your stop losses and your risk percentages.
Key Takeaways
The idea that a huge capital is required to trade is one of the most discouraging myth in this industry.
It is not a prerequisite to start trading. However, having a structured system, managing your money and having a solid discipline are.
If you started reading with the idea that you needed a huge amount of money to start, I say you need to shift your perspective. Small capital is not a limitation, it’s proof of concept. Your success does not come from the initial deposit, it comes from your system and how you execute it. Capital will then become a tool rather than a barrier to your trading career.
