Trading a small account and trading a large account both require different skills and strategies to evolve. Trading a small account needs to follow very strict risk management and money management. A small trading account is a great way to limit losses. It helps you to gain confidence.
Today we will discuss trading a small account.
What is a small account?
A small account is a retail trade account where trading volumes are quite low and a small trader holds positions that are below the required reporting entries stated by the relevant exchange. Usually, a small account is less than 10,000 times the smallest basis point by which a security can increase or decrease in price.
Trading with a small account
Trading with a small account refers to trade in a lesser volume than the point at which the existing legal and regulatory agencies require an exchange to report them. It involves a lesser regulatory concern as small traders may not have the assets to manipulate prices. Risk Management makes trading with a small account tough.
Small trading accounts are more laborious to trade profitably without strategies. Here are the simple approaches that help you to make your trading less risky and less stressful.
- Risk Proportionally to Your Trading Account Size
Trading with a small account involves risking more per trade (as a percentage). It is advised to a trader with a small account not to take more than a 1% risk of total trading account. So for an Rs.50,000 account, you should only be risking Rs.500-1,000 per trade at least in the beginning.
- Best Setups Only
Pay extra attention to your setups in strategy as there is no space for any error, especially when trading with a small account. You need to keep searching for top opportunities to place your capital. Trade the best setups only. Some set up you can look at are as follows:
- Bull Flag Patterns
- Gap and Go down
- Discipline and Patience
The smaller your account, the more each trade you execute is important. Sticking to your plan, avoiding emotions, and being patient to become profitable are necessary tantrums and critical at the same time. Be patient and disciplined to allow yourself to succeed.
- Do not time the market
If you notice an opportunity, get in. Do not ever try to time the market to get a better price over the next 1-2 hours or days. Be penny-wise.
- Do not set daily profit-making goals.
- Don’t compare your profits to others.
- Set realistic expectations only.
Demat account holds your financial securities in electronic form. Whatever the trading style you are going to follow, you need a Demat account and trading account.
You can open a Demat account online with various brokers. There are no account opening charges applicable usually. Account Maintenance Charges and transaction fees are other charges than Demat account opening charges and applicable as per your trading volume.
To maximize your profits from trading, you should choose a low brokerage Demat account with a discount broker who charges a flat brokerage rate per transaction irrespective of the trading volume. This way, you can save on brokerage costs and maximize your earning potential.
The Bottom Line
Trading a small account checks your patience while waiting for a buy/sell signal. Your patience can protect your account. Keep reminding yourself of the goal with a small account is to develop your edge and not being a millionaire in a shorter span of time.