The foreign exchange market can be a good way to begin building up your trading capital and portfolio in the financial markets. Forex can have many different opportunities for even small balances to have a chance to gain profitability.
In this article we are going to take a look at how you can have small beginnings and yet be able to build up slowly and grow your account.
Having Clear Trading Goals
The first step toward being able to build up your portfolio in the forex market is having prop and clear trading goals. This begins with setting realistic aims for the trading process. The reality of the matter is that the forex market is full of small ups and downs. The spread can be quite marginal sometimes, which means you do not stand to make substantial profits from every position.
So it is important to have goals that are aligned with the realities of the market. If you set highly unrealistic goals, then it would be just that much harder to attain those goals.
Proper Risk Management
Some might consider the whole notion of risk management rather preliminary especially when the beginnings of a trader are to use a political term, humble! But the reality is that risk management is impossible when you actually build up a substantial amount of capital as a trader.
Even if you have small beginnings, you need to implement risk management from the very beginning. This is because you need to protect even the smallest amounts of profits that you have made.
It is so much easier to lose all of your assets when it is still small and growing. Whereas if you have built up a significant amount of money, then even a loss might be so significant that it would leave a big hole in your capital.
So at the beginning, when your position is still a bit shaky and founded on thin ground, you need to be even more careful, because even a small loss can mean the difference between your remaining in the market and not.
Quality over Quantity
One way that you can grow a small forex account is by prioritizing quality over quantity. This means instead of going for high frequency trading such as day trading or scalping, you can opt for other trading styles that are longer term in their approach, such as swing trading or position trading.
This is because such longer term approaches to trading can yield a higher rate of profit compared to small and frequent positions.
This can be a good strategy for building up your trading capital in the forex market. In order to better understand this, you can think of profitability in terms of percentages rather than dollar amounts. So if you consider your profit rate as something like 10%, then you can understand quite easily how 10% of a position with a size of $5000 is so much more than the same rate for a position with a size of $50.
So this overall strategy can help you a great deal if you focus on quality over quantity in the market.
Quantity Is Not Bad Either!
Not to contradict what we just said, but sometimes quantity is not bad either!
So how can this help you grow your small forex account? This idea is founded on the whole basis of accumulated profits. You can opt for small profits that can accrue over time and then turn into something substantial.
This is presented in strategies of trading that are high frequent in their approach to trading, which includes strategies such as scalping, day trading, etc.
Using Leverage or Prop Trading
If you have a small amount of capital for trading, not only is it possible to begin trading in the forex market, you can even do so with the hopes of building up your portfolio to something truly significant.
There are two approaches that can really help you in this regard:
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Using leverage
This method which is known as leveraged trading is when you can use the leverage provided by a broker to trade in the forex market. Leverage is the capital that a financial company like a broker will provide to you so you can trade in the market and gain more substantial profits. But of course to receive the leverage you need to put up a collateral that is known as margin and you ought to be careful not to lose the margin as it will lead to being margin called.
- Using prop trading
Prop trading is a form of trading in which a company known as the prop firm will provide you with the capital to trade and does not require any margin. But in order to receive the funds from the prop firm you first must pass the prop challenges that are proposed by the prop firm. Prop challenges are trading challenges that prove to the prop firm that you are an expert and professional trader who can optimally use the money from the prop firm and trade profitably in the market.
