Balance between profit and risk with a small deposit

Everyone who trades on the Forex market knows how difficult it is to make a bill grow systematically. You can find the opinion that building a small account is much more difficult than it is for a larger account. Everything about how we perceive our deposit. Having an 500.000 account, risking only 0,5% of this amount, we get 2.500 PLN of potential loss, and profit at 3R level gives 7.500 PLN of potential profit. However, what if only PLN 1.000 is on our account? Even if the risk is 2% of the account, a transaction with a 3R profit is only PLN 60 - not a great amount to make you feel successful. For many traders, the solution to this problem is high leverage (at the expense of increased risk). As a rule, this is the case until  they will clean their account and return to the starting point.

In this article we will try to explain why maintaining a relatively low risk is important, especially when funds for trade are severely limited. A specific balance is very useful and makes trading easier.

Be sure to read: Low deposit at Forex - an obstacle or a challenge?

Reason for Trade

Regardless of what we do in life, it is good to ask yourself: "Why do I do it?". This is especially true for long-term and demanding projects, which can undoubtedly include an effective, profitable trader. If you don't have a strong enough reason, you are less likely to succeed. Very often, for many people, investing is something that is supposed to help them support their family, improve their life situation, or simply become their own boss. I'm not saying that these are bad reasons, but in the case of trading, it is not the material benefits that should be in the first place, but the passion for what you do. The right approach makes it easier to survive the difficult periods that will come sooner or later. What does this have to do with finding the title balance? All three of these reasons boil down to a common denominator - making more money. This desire is dangerous because it leads to excessive risk, especially if you have a small bill. In turn, if your main reason for currency trading is passion for markets, then you will not be in a hurry to pursue other goals.  

Measure your progress as a percentage

Never fall into the trap of using the currency symbol to judge your progress. This is one of the most common mistakes among traders. This is an inclined plane with severe consequences. If you focus only on money earned or lost after the transaction, you are assuming incorrect measurement. You must pay attention to interest to avoid emotional carousel. This can be better illustrated by a simple example. Let's assume that you have an invoice from 1000 PLN. You closed your profitable long position with GBP / USD, where you risked PLN 10 and your profit was PLN 50. This is a very good transaction, especially if it has been achieved in a relatively short period of time.  But what if it lasted two weeks before it took place in your favor? This is where many traders make a mistake. Instead of seeing 5% profit (and in this case 1% risk) in two weeks, they see 50 PLN, earning fourteen days.

Now, for a change, let's analyze an analogous situation on a deposit of PLN 500. 000% profit gives us PLN 5. In fact, the percentages have not changed, and the effort that was put into earnings is exactly the same. Remember, regardless of the size of the deposit, use percentages to measure your performance.

Summation

I hope that the article helped a bit to understand what is needed to keep the risk low when trading on a small deposit. Primarily you need a strong reason, whose main premise is a passion for trading. Always use percentages to evaluate your progress. Make no mistake by focusing on the amount of money you earn. If your deposit is relatively small, this type of foolishness can lead to excessive risk when trying to make more money.

Remember, earned or lost money is a matter of perception. The skills needed to earn 5% in a month are same, regardless of whether your account is credited with 1.000 PLN or 500.000 PLN.