Try these eight tricks…
Are you sick of hearing about people making £5k a week trading some amazing low-risk strategy?
For that to be possible, you’d have to have a trading fund running to tens or even hundreds of thousands.
But what if you’re like most normal people? Your income only just covers your outgoings, and you’ve got just a few thousand, or even a few hundred to trade with?
The very same low-risk strategy (assuming you can even do it with such small funds), might make us just £20 a week.
It hardly seems worth the time and effort.
Surely the whole point of trading is to create an income that can really make a difference to our lifestyles. That can give us some of the better things in life, and a degree of financial security.
£20 a week really doesn’t cut it.
But, what I want to show you today is that it doesn’t matter how much you have to start – stick to these 8 guidelines and you can still achieve serious financial gains, even with the most modest of funds.
1. Pat yourself on the back
Many of the most successful people on the planet have started out from very humble beginnings. The simple fact that you’ve decided to use the small fund you’ve got to work towards something bigger and better for you and your family may only be the first step – but it is the most important one.
How much money you have to start with is only a small part of what makes a trader successful. A trader could start out with a fund of £25,000 and wipe the lot out in the space of a year. Another trader could start out with £1,000, and by doubling that each year, have turned it into over £1 million in ten years.
The most important ingredients for long-term trading success are good money management and dogged perseverance.
2. Seriously small funds
The standard wisdom used to be that you needed at least £1,000 to get started with spread betting. However, these days, platforms are all vying against each other to capture the ‘newbies’ and you’ll find plenty of places where you can start out trading at stakes of pennies. And there are even a few firms that will allow you to trade 10p per point long-term (more on this in a moment).
This means that, as long as you have the right kind of strategy (more on that in a moment, too), you can start with considerably less than £1,000 and still maintain a sensible risk profile.
3. Money you can afford to lose
The standard line is that you should only ever trade with money you can afford to lose. And, if things for you are financially tight – this is even truer.
The thing to remember about a small trading fund is that, chances are, it’s just as valuable to its owner (perhaps more so) as a large trading fund is to the next man.
Your trading fund is your ticket out.
Whether it’s big or small – it’s extremely valuable.
That’s why we should guard these funds ferociously. No matter how small your fund is, if you view it as ‘play money’ that you can afford to lose – that’s exactly what will happen to it.
4. Work forwards not backwards
When faced with the prospect of earning a tiny return from our tiny funds, we may be tempted to up our risk levels.
Instead of looking at our fund and working out how much we can earn, we instead focus on how much money we want to make … and work backwards from that.
This means staking too high…
This means trading too often…
And, usually, it means wiping out that small fund.
Many times I’ve heard traders say that they’ll just trade at a higher-risk percentage until they’ve built up their fund to a reasonable level – then they’ll cut their risk. Chances are they’ll never get that far, because a few losses will have come along and decimated their account.
5. Find a strategy you can use
If you have a small fund, there will be some trading strategies that you simply cannot use. No matter how tempting they look… or how great the returns are… or how far you reduce your stake size… they are not going to be practical or safe for a small fund.
Let’s say that the minimum stake you can trade at is 50p per point.
If your distance to the stop loss is, say 50 points, and you’re staking 50p per point. In order to be risking 2% of your pot on a trade, you’ll need to have a minimum of £1,250 in your account.
Other trading strategies, like those investing in individual stocks and shares, in order for the portfolio to be properly balanced, will require that you are trading several markets at the same time.
Having two trades open at the same time requires (in general) twice the buying power. If you want lots of trades open at the same time – you could find yourself with a margin call from broker if your funds aren’t substantial enough.
Look for strategies that will allow you to only open one or two trades at a time, and look for systems that don’t expose you to large levels of risk, which could make a nasty dent in your fund.
6. Make sure it’s successful
Another thing to look at is drawdowns – drawdown risk doesn’t often show up in data on how successful a system is, but it can be very important if you have a small fund. A drawdown is the size of a fall from a peak in your trading account, to a subsequent low. It tells us about the size and scale of losing runs.
Some of the most powerful money-making systems have very low success rates. This means that they lose a lot of their trades, but when they win, they win big.
This is great if you have deep pockets and a strong nerve – you can sit back and watch loss after loss after loss hit your trading account, waiting for that big winner to come.
However, if you’ve a small trading fund, you simply can’t afford to suffer that many set-backs. While these systems might look like the Holy Grail – they aren’t suitable for all.
7. But not too successful
At the other end of the spectrum, there are trading strategies that take lots of small winners, and suffer the occasional big loss. Again, if you’ve a small fund these aren’t ideal for you. If a few of these big losers come bunched together or very quickly after you start trading, they could decimate your fund, and it can take a long time to build it up again.
If you’ve a small fund, you’re looking for the middle ground – a good success rate, a little above the 50% mark, and a moderate risk/reward ratio (around the 1:1 mark).
8. Remember the second half of the chessboard
There is an old story that goes something like this…
An old man presented the Chinese Emperor with a chessboard. The Emperor asked what he’d like in return for the gift, and the old man asked for one grain of rice on the first square, two grains on the second, four on the third, etc.
The Emperor readily agreed, little realizing that he’d be up to 8 million grains by the 24th square, and that there wasn’t enough rice in the world to cover the final squares.
In fact, the total weight of rice on the second half of the chessboard would be 460 billion tones – six times the combined weight of all the living things on the planet!
This is the power of compounding.
It’s the simple process of re-investing our winnings. There’s absolutely nothing complicated or clever about it – yet, over time, it can send your profits into the stratosphere.
So, if your small fund is pulling in £50 a week, £25 a week, or even £10 a week, you should feel very proud. These are exactly the kind of returns that, when carefully reinvested can, over the space of a few years, build into serious wealth.
And finally…
Next week I want to tell you about a broker that’s perfect for anyone wanting to trade with very low stakes – maybe it’s because you’ve a small fund… maybe it’s because you want to test out new strategies with small risk…
Plus, I’ll tell you about the other benefits they have on offer.
