i. You should only have that much money in your account which you can lose.
ii. You’ll need big money to earn big money.
iii. Compounding is the no.1 key to growing a small account into a big one.
Traders should trade with an amount that they are comfortable with. Growing a small trading account needs discipline. It's entirely possible and traders need to have a plan regarding it. There are many ways by which traders can grow their small trading account into a big one.
How much should you have in your trading account?
Before I go on to how to grow a small trading account, let’s talk about how much you should have in your trading account or how much capital you should start with. The answer to the question depends on how experienced you are or how much exposure you have had in trading.
If you are just starting out on your trading journey, then you should only deposit an amount that you don’t really need and can live without it. The reason for treating it that way is that it will take away the emotions and you can avoid being too attached to the money.
Being too attached will make life very difficult as losses can happen anytime and can be there for quite some time.
While if you are having some experience in trading and you know what to do and how to do it, then you can certainly increase the size of your trading capital. But again, this amount shouldn’t be something that you may need anytime and that you don’t mind keeping in a trading account.
I understand that everyone cannot dedicate a big amount to their trading capital and often have to begin with a lesser amount. Now, how much capital is big and how much is small is very subjective and I cannot give you a definite answer.
But, if you still wanted an answer then a trading account is small when the profits that you can earn from it cannot cover your living costs.
Yes, you can always go all out on a small capital, risk 100%, and if you get lucky you can profit a killing. This is not the type of trading that we want to be associated with. If you are looking for something like that, then you are at the wrong place.
Now that you have understood what a small capital is, let’s see how you can grow a small trading capital into a big one that can allow you to live off the profits or maybe build wealth for yourself.
Growing a small trading account to a big one
Individuals take up trading with the sole purpose of earning profits. It is the no. 1 motivation for traders, accept it or not. It is not wrong to want more money, but money shouldn’t be everything. One shouldn’t keep money at the highest pedestal.
We all want to live a lifestyle that we dream of and we often look for ways to achieve it and trading is something that can make it possible if done right.
If you start your trading journey with a small capital and expect to start living the lifestyle of your dreams overnight, then you are wrong. In fact, big capital or small capital, you will not make it big with a get-rich-quick mindset.
What I intend to convey through this is that it will take time. How much time? It depends, but what I am sure about is that it will take some time.
You may see some forex traders on Instagram, Facebook, or Youtube that claim to have doubled and tripled their trading account within a week. This may and may not happen, but it is not a sustainable method to grow a trading account.
The problem with such an approach is that traders keep making risky trades. They make get lucky in the beginning, but one bad trade will wipe out everything.
If you are someone that understands this business of trading then you will know that trading is a business of accumulating small profits in the short term and making it big in the long term.
I often say that in trading, going slow is going fast. This is the best method to growing a small trading account into a big one, by having the right expectations and by being in the proper mindset.
If you have been following everything that I have said then you will have understood that my method of growing a small capital into a big one is by the method of compounding.
I am sure that you must have heard the saying that compounding is the 8th wonder of the world. It is such a simple concept yet not many can completely understand it.
Let’s consider that you start trading with a $1,000 dollar account and are able to profit 50% of your capital every year.
At the end of the 1st year, your account will be worth $1,500 and at the end of the 2nd year, it will be worth $2,250. You’ve more than doubled your account in 2 years.
This is how compounding works, you allow money to accumulate and pile up and one day the small account will grow into a huge one.
Tips to grow a small account
You now know that the secret to growing a small trading account into a big one is compounding.
But this isn’t all. There are some more things that you can do to fasten the process and try and reach the goal a bit faster.
1. Never withdraw money from the trading account
This is the most basic thing and it is very important. Never withdraw money from a trading account that you are trying to compound. It fails the main purpose of what you are trying to do.
You have to leave the money you have in the trading account aside and let it keep accumulating and growing.
Like I said earlier, you should have that much amount in your trading account that you don’t need and won’t mind keeping it in a place where you cannot remove it from.
If you maintain this discipline with your trading account and stay on track with the compounding, then only you will reach your goal of a big account.
2. Plan out your risk per trade
Risk management is the only holy grail in trading and I always say that traders should never risk more than 1-3% of their trading capital on any given trade.
The plan that you have with a small trading account is to grow it into a bigger one, so you might think of increasing your risk per trade as your capital grows.
Some traders look to adjust their risk per trade on a monthly basis, some do it on a quarterly basis, some on a semiannual basis, and some do it only after completing an entire year.
For instance, you have a $1000 trading account and you risk only 1% of your capital in every trade that amounts to a $10 risk per trade.
Now, after 3 months of trading, you manage to grow your capital by 20% and now your capital is at $1,200. You may think about increasing your risk per trade to $12.
This is completely up to the trader to decide and I’d suggest that you do plan it out beforehand. Set some targets for yourself and then look to increase your risk as and when the targets are met.
Increase risk as and when you increase your capital by an x% or increase your capital on a time basis i.e. monthly, quarterly, annually.
3. Fasten the process by adding money yourself
If you start out with a $1000 trading account and are managing to profit 50% every year, your trading capital increases by 50% year on year. A $1,000 capital will be at $1500 at the end of year 1 and will at $2250 at the year of year 2 and so on.
But what if you put in $500 at the end of the first year, then along with the profits you earned your capital will be at $2000.
After another year of profiting 50%, your capital will be at $3000, which would’ve been only $2250 if you didn’t put in that additional $500.
I hope you are following and are understanding the importance of it. Compounding along with additional deposits will work wonders for your trading capital and you might just end up with a mammoth of a capital.
4. Mistakes cost a lot, so avoid them
You are trying to grow a small trading account and you want to have things going according to your plan as much as possible. Now, the price may not move according to your analysis and you will incur a loss from time to time.
You cannot control price movement but you surely can control your actions.
If you are in this business of trading then you will have a trading plan. Every trade that you take will be according to this trade plan.
Big account or small account, you should stick to your plan at all times. If you deviate from your plan and it results in a loss, it will mess things up for you.
Whatever plan you had for growing your account will be disturbed due to a mistake that could have been avoided if you stuck to your plan. Hence, mistakes cost a lot, so avoid them at all costs.
You will make mistakes while you are a beginner but you should learn from these mistakes and make sure never to repeat them.
5. Understand the importance of win% and RRR
Any strategy that you trade must have a good combination of a win% and RRR.
Win% is the number of trades that ended up in a profit and RRR is the risk to reward ratio which is the amount the trader stands to pocket for every amount of risk he takes.
When trading with a small capital or even a big capital, traders should try and look for a strategy with a decent win% and a decent RRR.
Now, you will never get a strategy with a 100% win rate and you also never get trades that will always have a 1:10 RRR.
Whatever strategy you come up with, you should backtest it and look to fine-tune it. Doing so will allow you to unlock better win% and RRR and will in return do wonders for your capital.
6. Keep trade costs to a minimum
Imagine that you work so hard to find a strategy, you backtest it, fine-tune it, and you end up with a very good strategy that allows you to capitalize on the price swings.
You apply this strategy in the live market, keep your emotions in control, stick to your trade plan at all times, and make a profit.
After working so hard for a profit you see that your costs have eaten up a good part of your profit, how will you feel? I would feel very disheartened, to be honest.
Hence, it is very important to keep your trade costs to a minimum. It becomes even more important when you are trading with small capital.
You have to look for a broker that does not rip you off and charges minimum brokerages and spreads. This way you can keep costs low and also keep the hard-earned money that would’ve otherwise gone away as costs.
What are your thoughts on this?
Not many traders believe that they can grow a small account into a big one, but I completely disagree.
I have grown a small account that is now sitting at $100,000 and in this blog post, I have shown how you can do it too.
Do let me know what you think. Also, let us know your comments on this blog post.
Share this blog post with every trader you know and let them also learn to grow their trading accounts.
If you have any questions or queries then do mention them in the comments section. I will revert to it at the earliest.