Reinvestment or deposit acceleration. How to do it right?
Nowadays, trading on the currency market has transformed from a kind of "elite club" into something that anyone can do. With just a few dollars in your pocket, you can open a trading account and proudly declare: "I am a currency trader!".
Nevertheless, after having traded on mini, micro, nano and other cent accounts for a while, the trader gives up the idea of earning a million dollars from the initial deposit of $100 and begins to realize that large profits are only possible if you have a large trading account.
Reinvestment - the path to hidden losses
Not every trader can (or wants to) invest a large sum of his own money into trading on the foreign exchange market. Of course, it is possible to take money in trust management, but we will not talk about that today, especially since other people's money is other people's money.
Many traders go the way of to increase your own deposit. To do this, they leave all the profit received in the account, i.e. reinvest it. However, leaving 100% of profit on the deposit, the average trader, without realizing it, incurs unplanned losses.
It can't be, you say! Let's do the math together.
Let's do the math together
For example, the deposit of the trader is $ 1000. The profitability of his trading strategy is 50%, and the ratio Take Profit to Stop Loss looks like 1:1 with an acceptable risk level of 10% of the deposit.
Let's assume that the first trade was closed with a profit. This gave 10% increment to the deposit, which is now $1,100 ($1,000 + $100). The next trade was closed at a stop loss, the deposit decreased by 10%. But if in the first deal 10% was $100, in the second deal 10% is $110. That is, the trading account now equals $990 against the initial $1,000.
"Okay", you say, but you can also use strategies with higher returns and reduce the level of risk. But we're not just trading, but increasing the deposit, which implies a high level of risk - without this we're not talking about any overclocking.
Reinvest correctly!
As you have already understood from the example described above, 100% reinvestment of profits leads to hidden losses, which can often reduce the initial deposit. But since we do not invest any more personal funds in the deposit, there can be no acceleration without reinvestment. Which means, you need to reinvest your profits correctly. How to do it?
We propose to go the way of cost compensation by capitalizing your deposit only in the positive zone. This is achieved as follows.
- It is necessary to analyze the results of your trading and determine initial risk level. Let's say you defined it as 5% of the deposit. That is, with an initial deposit of $1,000, a stop-loss trade closed will bring you a loss of $50.
- After your profit increases the deposit by 50% to $1,500, increase the risk level to 7.5% and consistently increase it further:
- increasing the initial deposit by 100% - risk level 10%;
- increase by 300% - risk level 20%, etc.
At the same time, this proportion works only in the direction of growth. if the size of the deposit began to decline, the level of risk is not reduced.
- As you yourself know from our articles on the psychology of tradinggreed and fear are the main reasons for losing money on the foreign exchange market. Therefore, if you suddenly have a string of losses, there is no need to engage in a struggle with the market - you will lose anyway.
It is necessary to stop trading, withdraw the profit, bringing the deposit back to its original state. Have a little rest, come to your senses - and you can start all over again. Believe me, you will not lose anything, and rest is almost always good for a trader.
How long can I run up a deposit?
Theoretically, the process of deposit overclocking can continue indefinitely. In practice, the trader has one of these problems:
- Lack of liquidity
The essence of the problem is that when you increase the deposit up to a certain level, the strategy that worked before ceases to be such. In simple terms, to double the deposit of $ 1000 is not very difficult, but to double a trading account of 100 thousand dollars is rather problematic. Therefore, as your deposit grows, you will need to adjust your trading strategy.
- The Human Factor
A million dollars is a very, very serious amount, and it can only be earned by someone who is willing to do it. Are you willing to risk $300,000 to make a million dollars?
- Unscrupulous broker
Your profit is, more often than not, the broker's loss. Therefore there is a probability that after some time the broker will start to put "sticks in the wheels" for you. Unbelievable? Just look at the topic "Blacklist on and claims to brokers" in the forum of traders.
In general, the acceleration of the deposit is a rather subtle matter. Trading on the currency market can improve your financial situation, but if you want to turn an engineer into a millionaire, then you should not cherish such illusions. The legends about traders, who made millions in the market with 100 dollars in their pockets, are certainly motivating, but no one knows anything about such real people.
Conclusion
When taking up deposit acceleration, you should be aware of a very important thing, without which this whole endeavor will be absolutely meaningless. We are talking about the acceleration of the deposit by reinvesting profits. The key word here is "profit". That is, your trading on the foreign exchange market must be successful. None of the techniques described above will work if your trading is unprofitable. Therefore, to begin with, you need to choose the right trading strategyThe main goal of the program is to achieve stable positive results, and only after that to start overclocking your trading deposit.
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