Every traders wants to trade Big with a well funded trading capital of at least 20 lakh but very few are able to achieve this feat. Its often said Making the First Million is the most difficult thing once achieved money will flow in your coffers.
Trading small account is very difficult when compared to account having large trading capital, As such when your trading capital is large traders are buffered against mistakes, unexpected losing streaks, and sometimes even bad trades, but small accounts have no such buffer. When trading with large account trader can test n number of trading strategies in live market but small account we have no such luxury.
In Reality 80% of traders trade with small account from 30K-70K which is just enough to cover margin of the derivatives traders is trading into. Most of the brokerage house who deal with retail client have 90% of client which are having capital less than 1 lakh.
Trading with small trading capital requires “Very Very Strict risk management and money management ” , not having it will lead to Trading account blowout and will throw traders out of market. Trading with small capital, trader has no buffer for unexpected moves in market . Recent panic fall in Nifty on the Day of Surgical Strike o expiry day had blown out many small trading accounts. Trading small account single losing trade can make an account untradeable so trades is always under pressure to make a profitable trade. Most traders are unable to bear the pressure and eventually do a trading mistake which ultimately lead to blowout.
As we know most of us are not born rich and we need to devise strategy to trade small account and make it big as time goes by, So here are few cents which can help traders to trade profitably.
- Take Risk Averse Trade: Do not jump in a trade because you think that market has hit absolute bottom, or top or because your gut feel says so. Most of traders try to jump the gun and take trades thinking market/stock cannot go down more or cannot rise further than particular level. When we are trading with small capital we have to make sure we go for trade having good Risk to Reward ratio and trading on intuition is strict no no . I know many traders who blindly take traders in Options thinking we can double triple money in matter of days but alas they kept sinking like a broken ship. So its always better to avoid to take trade against the trend and stick to traders having High Risk to Reward Ratio.
- Do not take Excessive Leverage -Excessive Leverage is another major reason for small account blowout. Trader having capital of 50K use 10-15 Time leverage to take big trading bets in intraday , a single bet goes against you, 20-30% of account size can get eroded. Always remember losing 50% of your trading capital , to recover back again you need to make 100% . So aviod excessive leverage. Always ask yourself a question before taking any leverage trade What if the trade goes against me ? Will i be able to sustain another day ?
Note that leverage should not be used to increase the trade’s size (i.e. the number of shares), but should only be used to reduce the trade’s margin requirements.
- Trade using a profitable Trading system, Have a trading plan before your trading day starts and always be in high spirits if things does not work as you have planned.
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 , small account traders can make a good living from their trading, and may be able to turn their small account into a large account.