Can I trade with a small account?

What strategies are needed when you have a small account, around $5,000?

If you’re going to use correct risk management tools, such as fixed fractional position sizing, or the 1%, or 2% rule, first of all you’re not going to be able to do too many trades. And second of all, your position size is going to be so small that the market has to move a phenomenal distance in order to just cover your costs. So I understand that there are certain people out there that say you can trade with $5,000, or you can be successful with $5,000. And look, I’m sure there’s people out there that have been, but there’s also people out there that win the lottery. But for the very vast majority, the chances of success are very, very low to nothing.

I’m just talking about probability of success. I’m not talking about impossibility, I’m talking about probability. So trading is difficult enough as it is, and there are certain aspects of successful trading that you can control, and one of those aspects is your commission rate. You can go and move from a high price broker to a discount broker. You can do that yourself. It’s common sense to make it as cheap as possible to improve your bottom line.

The second thing is you can control the amount of capital, or you should take responsibility for the amount of capital that you want to trade with. Mathematically if you start with $5,000, and you want to be a short term trader, then you’re going to have to make 40% return just to break even.

I’d suggest you stop trading and save more capital; wait until you’ve got more money. I hear people say “oh, I’ll just give it a go with $5000 and see how I go”. Don’t bother. You’d be better off giving your money to charity.

To give yourself the best chance at success remember:

* more capital is better and

* find the cheapest brokerage you can to keep your costs down.