Is it possible to earn in the foreign exchange market with a small deposit?
Trading on the currency market is so widespread nowadays that everybody, who has 10 dollars in his pocket, can feel himself a trader. Brokers thoroughly support this concept by widely advertising the idea that the minimum of money is needed for trading. The Internet is full of blogs telling how a couple of dozens of dollars on the currency market can be turned into almost millions of income.
Does it mean that the size of the deposit does not matter? After all, what is the point of investing thousands of dollars in trading, if you can do perfectly well with a sum many times smaller? Today we are going to try to find an answer to a very controversial question, whether the size of the deposit affects the profitability of trading.
The difference between a large and a small deposit
To see the practical difference between a small and large deposit, let us simulate the following situation.
Suppose we have a trading strategy, the profitability of which is 60%. That is, six out of ten open trades are profitable, and four are unprofitable.
It is worth taking into account that the profitability in 60% is average and is determined on a certain time interval, for example, half a year or a year. If you take a smaller interval, for example, a month or a week, then this indicator can fluctuate. A situation familiar to every experienced trader in which such a strategy will produce a series of five losing trades is quite acceptable.
This strategy is used by two traders. The first trader's deposit is $10, the second trader's deposit is $500. The loss on each trade is $2.
As a result, trader number one is left with no money, and trader number two has a deposit of $490. The second trader has the opportunity to continue trading, reaching the profitability index of 60%. The first trader to continue trading will be forced to replenish his deposit.
The next series of losing trades will just as well zero out the small deposit, making such trading haphazard and chaotic.
Deposit acceleration and money management
There is an important point here. Certainly the literate reader will notice that by rules of manegementThe lot size should depend on the size of the deposit, so with such different deposits the loss size will also be different. Of course, this is true. But in this case we are talking about earnings.
To earn on a small deposit, the MM rules are often ignored. Very often strategies of acceleration, which imply receiving big profit, use the Martingale method, order grids and other methods that have increased risks.
After all, you must agree that even within the risk management, a strategy with a profit of 60% on a deposit of $ 10 will bring a trader for six months or a year, a profit of $ 6. What kind of earnings or deposit acceleration are we talking about then?
It is unpleasant to lose any money
Let's try to look at it from a psychological point of view. The reduction of the deposit from $500 to $490 a trader can calmly survive without experiencing any acute emotions. But if the deposit is reduced from $10 to $0 - the trader experiences the shock of losing money, nervousness and desire to win back.
Thus, we can conclude that a large-sized deposit does not cause as much emotional stress as a small deposit, potentially being a threat of increased nervousness.
How much does an "invaluable" experience cost
There is an opinion that small deposits are, so to speak, training. Even if such a deposit is lost, $10 is not a pretty sum, but practically invaluable practical experience will be accumulated. That is, it is better to lose $10 once, so that you can earn hundreds of dollars from the experience gained.
Theoretically, this concept has the right to life. But let's try to answer the question - how many $10 deposits do we need to "drain" in order to gain that experience, which is priceless?
In fact, there is no correlation between the amount of money lost and the experience gained. You can lose 100 deposits of $10 each, but never learn anything.
We can say even more - the invaluable experience gained by losing deposits is in no way connected with potential success of traders. A huge mass of people gain such experience in the market, losing their money time after time. Unofficial statistics says that only 5-10% from the total mass of traders are steadily earning. If there were any connection between the lost deposits obtained in such a way and potential profitability, this percentage would be much higher.
For testing
Nevertheless, it is impossible to say that small deposits are of no use. For them there is its own field of application. As a rule it is testing. Small deposits will help to test the effectiveness of the trading strategy, the performance of the Expert Advisor and other tools. A beginner trader will also get the skill to replenish the deposit with real money and, if everything is done correctly, even withdraw funds.
If you want to invest $10 in trading to turn it into $100 in a month - you're unlikely to succeed, despite all the secret trading robots, insider signals, Grails etc.
However, this does not mean that we urge you to invest thousands of dollars in trading. Here we need to remind you of one of the key rules of money management: invest only the money you are willing to lose in trading. Trading on the foreign exchange market is hard and painstaking work, which requires maximum concentration and dedication from the trader. Only then every dollar you invest will be profitable. Otherwise, no matter how much money you invest, the result will be zero.
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