In the article I’ll tell you about The Pros and Cons of Trading Forex with a Small Bankroll. There are a lot of ads these days promoting systems for trading forex. One of the advantages that they frequently mention is that you don’t need a lot of money to start trading. While this is true it doesn’t necessarily make it a good idea. You do have to ask if it is a good idea to trade forex with a small bankroll.
The biggest pro of trading forex with a small bankroll is the fact that potentially you can make a lot of money quickly. One of the big disadvantages of most forms of investing is that if you only have a small amount to invest it won’t seem worth it. After all a ten percent return would be considered great on most investments. However if you only have a thousand dollars to invest that is only a hundred dollars that you make. In most cases this is hardly worth doing. With forex you can double your money in a matter of a few days because of the high margin that you can use. This makes it much more worthwhile if you have a small investment.
The other pro of forex trading with a small bankroll is the fact that you have no fees. With most investments the fees involved will kill the small investor. In our example above where we made a hundred dollars in all likelihood we would have lost half of that to broker fees. If we had invested in the stock market we would have had to pay our broker both when we bought the stock and when we sold it. This is known as slippage to professional traders and it will just kill you if you don’t keep it under control. Since there are no broker fees with Forex this is less of an issue.
The biggest con to trading forex with a small bankroll is that you run the risk of being wiped out very quickly. Margin can really help you make a lot of money but it can also put you at risk of losing a lot of money very quickly. Most experts advise that you limit the amount that you put on any one trade so that you don’t lose it all if things go badly. This isn’t really something that you can do when you have a small bankroll. That makes money management a problem and puts you at risk of losing the entire thing.
The other issue that you are going to face when you have a small bankroll is that it may lead you to make bad trading decisions. You need to realize before you start trading that there is a possibility that you will lose on a trade. If this puts you in a position of being overly cautious you could end up making a lot of poor trades. Too much caution is just as dangerous as being too aggressive.