Every trader who starts trading wants to trade big accounts but very few of us actually get to do this. Most traders are stuck with trading relatively small accounts not more than 5 lakhs and most of them go bust. Trading a small account requires very strict risk management and money management with strong mental strength because there is no buffer against mistakes or any unexpected losses. In Recent Memory 24 June was the day where many traders trading small account went bust. Nifty opened gap of 300 points and if you have small account if a trading account only covers its required margin for 1 lot of NF @50000, and it takes a 22000 loss, the account will become untradeable until additional money is deposited and most of traders will throw towel.
Trading a Small Account
Trading a small (or under capitalized) account is much more difficult than trading a large account. Large accounts are buffered against mistakes, unexpected losing streaks, and sometimes even bad traders, but small accounts have no such buffer.
In addition, trading a small account has psychological issues that make it even harder to trade the account well. For example, when a trader knows that they can only afford a single losing trade before their account becomes untradeable (because it will know longer cover its required margin), the pressure to make a profitable trade is enormous. If the trader handles this pressure well, this might not be a problem. However, even the best traders have losing trades, and there is nothing that can be done to avoid losing trades, so this is not something that the trader has any control over, which adds to the psychological stress.
Advice for Small Accounts
With all of the disadvantages, it appears as though it is not possible to trade a small account profitably. This is not the case, and small accounts are traded profitably by many traders (including professional traders).
- Trade with Less Leverage – Most of Brokers gives a leverage of 1:10 to 1:5, If you are new traders do not fall in trap of leverage. You Never drive a Luxury car with knowing how to drive a small car. Apply the same logic in market, do not trade on leverage if you do not know how to trade. Trade in cash market till you are comfortable with your trading strategy.
- Trade Conservatively – Traders with well funded accounts have the luxury of making trades with high risk (e.g. large stop losses relative to their targets). Trader with small accounts must be more cautious, and make sure that their risk to reward ratio, and their win to loss ratio are being calculated and used correctly.
- Adhere to the One Percent Risk Rule – Trading in accordance with the one percent risk rule provides a small account with the same buffer (against mistakes, unexpected losses, etc.) as a large account. Many professional traders abide by the one percent risk rule regardless of the size of their trading accounts, because it is a very effective risk management technique.
Some traders adamantly state that under capitalized trading accounts cannot be traded successfully. This is not true. Small trading accounts may be more difficult to trade successfully, but if they are traded correctly, there is no reason why small trading accounts cannot be profitable.
By controlling the stress that is often associated with under capitalization, focusing on risk management, and correctly applying their risk management techniques (especially the one percent risk rule), small account traders can make a good living from their trading, and may be able to turn their small account into a large account.
Poonam the kind of return u have if u maintain the same for 30 years you Will be the owner of the whole world
Thank you Bramhesh sir, it will help to make mind set of small traders.
thanks,,,
the lesson is meager amount of 10000 or less should not think of trading. i dont agree with this as he too can stay alive in trading with proper stoploss but cannot trade with 1% rule.
Thank you sir .
IMO u could just buy stocks/futures on dips after they crash(quality stocks),e.g:banking stocks in 2013 and 2016(jan,feb)..pharma stocks fluctuated very well in the last 6 months..You wont have a mark-to-mark problem since you are buying at lows.
as a small trader(intra-day) i have learnt u can earn every day on a conservative term 2-3% of ur total capital employed provided u keep a tight stop loss and know your charts…today i need to thank you for all the thing i have learned from ur site…thank you for the knowledge
2-3% every day? Must say you are doing great even for a small account
Please do not keep unrealistic expectation 2-3% every day means 60% a month taking 20 trading days means 720% a year its practically not possible..
Sirji, awesome post…This is something which lot of people would love to read. Thank you for your selfless efforts for the trading community..
thanks..
Dear Bramesh, what is one percent risk rule? If possible, kindly share.
DAY I 500000 495000
DAY 2 495000 490050
490050 485149.5
485149.5 480298.005
480298.005 475495.025
475495.025 470740.0747
470740.0747 466032.674
466032.674 461372.3472
461372.3472 456758.6237
456758.6237 452191.0375
452191.0375 447669.1271
447669.1271 443192.4359
443192.4359 438760.5115
438760.5115 434372.9064
434372.9064 430029.1773
430029.1773 425728.8855
425728.8855 421471.5967
421471.5967 417256.8807
417256.8807 413084.3119
413084.3119 408953.4688
408953.4688 404863.9341
404863.9341 400815.2948
400815.2948 396807.1418
396807.1418 392839.0704
392839.0704 388910.6797
388910.6797 385021.5729
385021.5729 381171.3572
381171.3572 377359.6436
377359.6436 373586.0472
373586.0472 369850.1867
369850.1867 366151.6848
366151.6848 362490.168
362490.168 358865.2663
358865.2663 355276.6136
355276.6136 351723.8475
351723.8475 348206.609
348206.609 344724.5429
344724.5429 341277.2975
341277.2975 337864.5245
337864.5245 334485.8793
334485.8793 331141.0205
331141.0205 327829.6103
327829.6103 324551.3142
Amuthan keep your stop 1% of you capital and you will be in the game even if you lose 100 trades continuously and you will certainly learn during the 100 days of trading , erosion of 5 lac capital is pasted above, 1% losing every day
Very encouraging and enlightening advice for small traders like me..Thank you very much Sir…