Many people are under the misconception that you need a high amount of capital to start trading. In reality, the barrier to entry is low compared to other investment vehicles. The shocker? Trading with a small capital is actually beneficial. Here’s a detailed guide explaining the top four reasons you should trade small:
1. Low Risk
Let’s be real – trading is a high-risk venture. Your every trading decision is influenced by numerous moving parts, including market conditions, inflation, and company reports. One unexpected market fluctuation and you can risk losing your entire account. Starting with a small account means low risk. It also means less financial pressure. Even if you do make a few bad trades, it won’t affect your financial life. You can recover quickly and get valuable experience.
2. Less Stress, More Learning
Did you know that more than 80% of all traders quit within the first two years? The most common reason is high losses due to emotional decisions and a lack of planning. When a trader invests a huge amount of capital, they tend to focus more on generating big profits and less on learning.
With a small capital on the line, a trader is more likely to learn discipline and other ways to manage emotions. This includes sticking to your trading strategy and using the right technical indicators to make informed decisions.
3. Safe Trading Strategy Testing
Learning the ins and outs of trading stocks, crypto, and Forex pairs isn’t enough. You need a tested strategy, which includes entry and exit conditions, risk-to-reward ratio and risk management strategy (stop-loss or take-profit orders).
By trading with a small account, you can test different setups and see what works best with your long-term financial goals. You can also try different trading strategies, such as day trading, news trading, mean reversion and swing trading. Our advice? Keep a trading journal as you improve. Note down the details of every trade. Review them later and make improvements.
4. Opportunity to Try Funded Trading
Many traders want to have a larger capital at hand, but don’t want to risk their own money. And it’s totally understandable. Fortunately, there is a way to do so. You can open a funded account with a prop firm.
First, how do funded trading accounts work? A prop firm gives skilled traders capital to trade with in return for a predetermined profit share. This could be an 80/20 or 90/10 model, with the trader keeping the bigger share. The best part? A reputable prop firm like Maven Trading will offer more than just capital. They provide educational resources and connect you to industry experts, allowing you to polish your skills.
Conclusion
Trading small might seem unexciting or insignificant at first, but it’s actually a valuable opportunity to prepare for high-stakes trading days. While paper trading has its place, it doesn’t match the psychological impact of using real money. Starting small allows you to build discipline, test strategies, and gain experience without exposing yourself to major risk. Stay consistent, keep refining your approach, and continue learning new techniques to strengthen your trading foundation.
