We may have heard of the amazing gains that can be made as a day trader of crypto or forex, but is it really possible to make a decent living when you only have a small amount to invest? By small I mean under $1000. In a third world country I presume you could say it may be less than that.
The problem with starting off with such a small amount, is that your profits from each trade are going to look so small, that you may well become despondent and give up early on in your attempts. This is due to the fact that to be a successful trader, it is strategic to only risk a small amount of your total on each trade. Add to that the fact that most traders are aiming for an average of only 1-5% profit a month. This sounds really small but it is precisely the profits that forex traders aim for.
Aiming for anything more than that would increase your risk/reward ratio to unsustainable levels. In crypto trading, now in the bull market especially, it may be possible to earn more profit from each trade, since spot traders only go long, compared to margin or leverage trading etc, who also short the market for profit. Risk management is a core fundamental tool in your trading strategy. So there is no quick way to make profits – and keep them – if you are trying to go big and earn fast. You will lose just as fast potentially.
Now 1-5% profit a month, all year long, is great if you have a large account and your 1% is thus also a decent amount is dollar terms. This is particularly true if you use the 8th wonder of the world – compound interest. If you re-invest your winnings into your account and don’t withdraw your profits, your account will grow steadily with each win, thus implying that your next trades will be with a bigger investment each time.
However, the problem with trying to accumulate 1-5% profits with a small account is that it will take more time. And time is the other valuable asset that we all have in limited amounts. So you will be required to spend much more of your valuable time in this trading strategy, and that equates to a loss, compared to a bigger account, from the start. Time is against us when we try to make money with a small account. That is the unfortunate reality of trading.
One solution to this, as recommended by experts, is to continually add to your stack. This can be done if you have a job or source of income, where you can add a little bit of extra cash from your salary or other source of income, to your trading account every month.
I know this is not always possible for us humble small time amateur traders, but it is a long term solution to a small trading account. You then see your trading account as a savings account at the same time. In cryptocurrency investing, it might be similar to the concept of DCA (dollar cost averaging), where you buy a little more every month or so, to add to your overall stack.
This is one way to beat time. Otherwise if you have time, then that will help you by allowing you to educate yourself more. By spending time in the markets, we can learn the details and vast skill set to be successful trader. If you are not able to add to your stack regularly, then you will end up losing much time trying to earn a living as a trader from a small initial trading amount. It’s a simple law of time and leverage.
If we try too hard and risk too much on each trade, we open ourselves up to equally big losses. Many small wins can be wiped out by one big loss. And the odds are always there that a loss will occur at some point in this high risk venture. So be realistic and either invest your valuable time, or your cash, or both, but be prepared to climb rather slowly in profit if you have a small account.
(image Unsplash)