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Reality check - do small FX accounts inevitably stay small?

  • #1
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  • First Post: Mar 3, 2011 5:19am Mar 3, 2011 5:19am
I've been trawling the Forums recently to gauge satisfaction or otherwise with various brokers. It seems that those who appear to be pro FX traders appear more satisfied with their brokers than those who are currently trading smaller accounts. I guess you'd expect that due to their greater experience - but I can think of several reasons why trying to grow a small FX account may be very difficult, like:

Small accounts are more often (though not exclusively) offered by high spread MT4 brokers with wide minumum stops and limits, rather than ECN/Currenex models with tight spread + commission and 'set your orders anywhere' - the latter generally have $10K-$50K minimums. In fact, the brokers who offer the smallest accounts often seem have the highest spreads, therefore the highest risk.

Sooner or later a small account holder with either be tempted or (in the case of very small accounts) forced to take on too much risk, and blow their account.

How many of you can honestly say [sorry, but this is an internet Forum after all ] that you have grown a very small FX account to a size where you can make some kind of a living trading? I mean grown it solely with trading profits, not by having $500K sitting in the bank waiting for enough experience to trade larger. If you have done so, I think we could all benefit from your wisdom, so please tell us how you did it - strict money management? natural genius? luck? All those plus a few more?

Thanks, Max
  • #2
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  • Mar 3, 2011 6:47am Mar 3, 2011 6:47am
I agree that small account holders are often tempted to increase the risk or forced. but the trader has to make this decision, and they must take responsibility for it. You must control you risk, if you cannot due to the lot sizes on your account, then you either need a different broker or you should not take the trade. its just maths, you cannot be risking 7% or something, on one trade, its just a fact that it will go wrong. for me its 2% tops. otherwise a drawdown can become very painful.

also i stop trading for 2 weeks if i lose 4 trades in a row. this stops the drawdown and lets me recover psychologically.

I also think you need to have a regular injection of capital every month. my own method is to add a certain amount for each trade i win.

I think very few will ever turn $500 into a living.
  • #3
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  • Mar 3, 2011 7:00am Mar 3, 2011 7:00am
Interbank dealing spread are 1 pips and you need to deal a minimum of 1 Mio €. So 2 pips spread for small account is fair and what most do. DB or Oanda do even less.

As you never be a scalper, when you use a 20 to 30 pips S/L for day trading, you still can make lots of money if you use proper position sizing.

Good luck
  • #4
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  • Mar 3, 2011 7:32am Mar 3, 2011 7:32am
Quoting highlander2
its just maths, you cannot be risking 7% or something, on one trade, its just a fact that it will go wrong. for me its 2% tops. otherwise a drawdown can become very painful.
There is nothing mathematically wrong with risking 7% provided you have the edge to justify it. If one chose to risk 7%, then they should naturally be expecting the corresponding drawdowns. Timeframe of course must be considered, as it is one thing to risk 7% on 100 pips and another to risk it on a few pips.
  • #5
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  • Mar 3, 2011 8:04am Mar 3, 2011 8:04am
I'm guessing you guys cannot use Spread Betting. You can start with small deposits and some companies let you bet £0.50 per point in forex.
Lets say you have a £2000 (which is a small account) and you only risk 2% per trade. Your average bet size would be £1 with 30-40 pips SL.
If you can make around 125 pips per week every week for 3 months, then you'd be making around £500 per week, which is reasonable amount to live outside London.
So if you are consistent, i believe you can start to make a living with a small account when you get to a certain level.
  • #6
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  • Mar 3, 2011 9:40am Mar 3, 2011 9:40am
I'm not sure that the same might not hold for spread betting, Jack - I'm UK based. I've met a number of people with small spread accounts, but very few I've met claim to be doing very well. On the other hand, I've met a couple of traders who claim to be doing well with ProSpreads, and they only deal in 'full lot' size bets for FX and 'full contract' size Futures bets - but they quote Currenex spread plus 0.5 pip on Majors like Cable, hedge every trade and never requote. Although they qualify technically as a spread betting company, they're brokers rather than bookies.

Max
  • #7
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  • Mar 3, 2011 11:20am Mar 3, 2011 11:20am
Fair point, Max, but i don't think their failure is due to spread betting or forex or cfd accounts, but rather a lack of trading skills.

The subject of this thread is whether or not people with small accounts can make it big and i still think that if we get a pro (like the guys you mentioned) and give him a small account but still big enough for him to trade within his money management and risk management rules, he'll probably double that account in no time.

If you are UK based i'd avoid FX and CFD accounts for now and stick to spread betting, just to avoid tax.
  • #8
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  • Mar 3, 2011 11:45am Mar 3, 2011 11:45am
Quoting jackdaniel
... and i still think that if we get a pro (like the guys you mentioned) and give him a small account but still big enough for him to trade within his money management and risk management rules, he'll probably double that account in no time.
  • #9
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  • Mar 3, 2011 12:16pm Mar 3, 2011 12:16pm
Does turning $100 into $1000 in 6 weeks count? :-)

I guess not, but it does make me feel good...
  • #10
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  • Mar 3, 2011 12:51pm Mar 3, 2011 12:51pm
Quoting dbeach777
Does turning $100 into $1000 in 6 weeks count? :-)

I guess not, but it does make me feel good...
Hehe, you´re profile says you have over 5 years of trading experience. I wonder what the account statements looked like the other 1819 or more weeks

Anyway, congratulations on your recent performance.
The nail that sticks out gets hammered back in
  • #11
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  • Mar 3, 2011 12:59pm Mar 3, 2011 12:59pm
Quoting highlander2
its just maths, you cannot be risking 7% or something, on one trade, its just a fact that it will go wrong. for me its 2% tops. otherwise a drawdown can become very painful.
When you use leverage 1:20, and stoploss 30 pips, it's a 6% risk, or SL 20 pips = 4% risk, i don't see any problem with that if you have win ratio, let's say, 7:3 (3 loser trades on every 7 winners).
  • #12
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  • Mar 3, 2011 1:23pm Mar 3, 2011 1:23pm
Actually, I've been trading for 15 years or more. And I've lost some 25k in that time, but I've made money overall in the last year and anticipate earning back all I've spent on "experience" in the coming year...

How about you?

Quoting Noloqy
Hehe, you´re profile says you have over 5 years of trading experience. I wonder what the account statements looked like the other 1819 or more weeks

Anyway, congratulations on your recent performance.
  • #13
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  • Mar 3, 2011 2:10pm Mar 3, 2011 2:10pm
Quoting maxr
I've been trawling the Forums recently to gauge satisfaction or otherwise with various brokers. It seems that those who appear to be pro FX traders appear more satisfied with their brokers than those who are currently trading smaller accounts. I guess you'd expect that due to their greater experience - but I can think of several reasons why trying to grow a small FX account may be very difficult, like:

Small accounts are more often (though not exclusively) offered by high spread MT4 brokers with wide minumum stops and limits, rather than ECN/Currenex...
1. Strict Money Mangement--- 40%
2. Natural Genius-------------< 1%
3. Luck---------------------- 40%
4. Other (methodology)------- 19%

You cannot control luck, but you can control you MM and trading method. Do well with these and you will stay in the game long enough that, perhaps, luck might turn in your favor and give you the payout you seek.

Regards,
  • #14
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  • Mar 3, 2011 2:25pm Mar 3, 2011 2:25pm
Quoting fx111
When you use leverage 1:20, and stoploss 30 pips, it's a 6% risk, or SL 20 pips = 4% risk, i don't see any problem with that if you have win ratio, let's say, 7:3 (3 loser trades on every 7 winners).
yeah so long as you do, but you dont know for sure the sequence of wins and losses and you cannot factor in freak market conditions, theres nothing to say that you wont experience several losses in a row.

the future of the market is unknown, i would not play with such high percentages, no matter what the probabilities of winning were.
  • #15
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  • Last Post: Mar 3, 2011 3:45pm Mar 3, 2011 3:45pm
Quoting highlander2
yeah so long as you do, but you dont know for sure the sequence of wins and losses and you cannot factor in freak market conditions, theres nothing to say that you wont experience several losses in a row.

the future of the market is unknown, i would not play with such high percentages, no matter what the probabilities of winning were.
I concur. The more you win(risk), the more you lose. This relationship is just a fudamental in probability. I only risk my capital to tolerate a max of 5% loss. Having said that, i was able to consistently make 3-7% monthly for the past 16 months regardless of my capital size (still small enough to maintain the growth). For those who manages to double (or more) their account in matter of weeks, i think they also manage to wipe many of their accounts in weeks. It is just pyschologically impossible (technically it is possible i must agree) to maintain such a high return when the capital gets large. My 2 cents.
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