Note from Managing Editor Sara Nunnally: One of the most common myths about currency trading is that you need a huge trading account. This might have been true five or 10 years ago. But there are many new foreign exchange products out there that give you access to a lot of currencies…
And you don’t have to be a “high roller” to participate.
The stock market and commodities have been wild. Lots of ups and downs. This could be driving some investors to look at other markets — like foreign exchange, or forex.
But many people think the Forex currency market is out of their reach. It’s not. In this week’s guest editorial, Michael Sankowski will show you how you can trade currencies with a small account. If you’ve ever considered trading currencies, or even if you’ve been curious about how this market works, this article will open your eyes…
Michael Sankowski is the editor of Currency Profits Trader. He guides thousands of subscribers through the Forex currency markets. I hope you’ll find this article intriguing…
How to Easily Trade Currencies — On Any Budget
I’ve been looking for a series of products that I can recommend to my readers. I wanted Forex products that will allow them to trade in the size that is appropriate for their account size.
I am always looking for ways to give the most advanced and cutting-edge information directly to you. And I think I’ve finally found the right products for new traders in the Forex currency markets — or for traders who have an account under $20,000 in size.
I recently wrote a special report about leverage. I recommend you read that report — because there is magic in leverage. It can make your account blossom in a matter of months — seemingly like magic.
The combination of properly sized contracts and the ability to use leverage properly is probably the most important information about trading you can possess. Every great trader is able to trade in a size that is appropriate to their overall account and allows them to increase their size if the trade is moving in their favor.
The New Forex Products: Perfect for Small Accounts
It is hard to find products that are good for people who are just starting to trade, or for people with accounts that are below $20,000. If you fit into either of these two groups, then these new Forex products will allow you to use advanced currency trading techniques.
You’ll be able to control how much you risk with pinpoint accuracy. You’ll be able to decide exactly how much to risk. You’ll be able to trade like the experts — with a fraction of their capital.
We’ve all heard the phrase “Teach a man to fish, and feed him for a lifetime.” The problem in the Forex currency markets is that all of the fish are whales. Teaching someone how to catch a whale doesn’t really help much unless he also happens to have a whale-sized account.
These new products turn the tables on the big Forex speculators. With these new smaller-sized products, nearly anyone can afford to access the markets.
(Sign up for Smart Investing Daily and let regular editors Sara Nunnally and Jared Levy simplify the market for you with their easy-to-understand articles.)
Currency Trading Small Is the Path to Big Profits
I am going to tell you right now the two most important questions to ask about any trade you will ever make!
The questions aren’t complex, and getting the answers right doesn’t require a Ph.D. in Astrophysics. Simply asking these questions will put you light years ahead of most traders. Here they are:
Question No. 1: How much risk should I take on this trade?
Question No. 2: What is my risk on this trade?
If you ask and can answer each of these questions, you will be a far more successful trader. I’ll teach you how to answer these questions. Part of the answer to the questions is knowing exactly which products to trade for your account size.
Question No. 1: How much risk should I take on this trade?
So, Big Shooter — do you want to risk 100% of your account on just one trade? How about 70% of your account? Of course not!
Risking all of your trading capital on one or two trades is foolish. It would be like spending your entire net worth on lottery tickets — you’ll probably lose everything you own.
The top traders never risk more than a few percent of their account on a single trade. I know this sounds almost too small to make money, but it is true. If you are risking more than 5% of your account on a single trade, you are risking too much. And as your account gets bigger, you’ll be risking less than 5% of your account on single trades!
I want to be 100% clear — learning to trade smaller is the path to big profits.
When you have a small account, or if you are a new trader, it is hard to find products that will let you take just a little bit of risk. I am making this simple for you by showing you the exact products you’ll need to use to be able to trade “only” 5% at a time.
Here is a handy table that shows the amount you should risk on any trade for different account sizes:
Many top traders have started with risking 5% or so on a single trade, but as their account grows, they take less and less risk per trade. I highly recommend you follow their example. As your account grows, risk less of your account per trade.
Question No. 2: What is my risk on this trade?
For Question No. 1, we answered how much risk you should take with each trade in relation to your account. Now we need to figure out how much risk is in an individual trade. We want to match the amount of risk we should take in relation to our account with the amount of risk taken on any individual trade.
For example, let’s say you are trading Wal-Mart stock. How much risk are you taking if you let the stock move against you $1 before you get out? You might say, “Not that much, it is only $1.” Well, what if you had 20 million shares of Wal-Mart? Suddenly, that “only $1” movement is worth $20 million! That’s a lot of risk!
Clearly, we need to know more than just how much the market is going to move. We also need to know how much position we have on. This idea is the same for the FX market. The amount of risk we are taking is directly related to the amount of FX we trade for an individual trade.
Here is the math — if you are so inclined: Your risk is:
Market movement * Position Size
In the currency markets, this is easy to figure out. Some people call the amount that you trade your exposure. But in any case, the amount of risk you are taking is directly related to both the amount you trade, and how much the individual product moves.
And this is why I am introducing these new products to you now. These new products allow people with smaller accounts to access the currency markets with an appropriate level of risk for the first time in history.
The New Products for New FX Traders
Each of the products I am introducing to you today were designed to be easy to trade — and small enough to be appropriate for new traders or people with smaller accounts.
EMicro FX Futures at the Chicago Mercantile Exchange
I love the new eMicro FX Futures at the CME — these are among the greatest products for a new trader I could imagine. Heck, the eMicro futures are great for experienced traders too.
Because they are futures products, they are extremely liquid. I think these products are going to continue to grow rapidly and that’s why I am beginning to use them in my trade alerts.
These eMicros are the perfect size for you if your account size is under $10,000. Remember, you can trade more than one contract. For example, if your account is $20,000, and you are taking 3% — or $600 worth — of risk on a single trade, then you may want to trade two or three contracts.
There are eMicro futures on the following currency pairs:
If you notice, these products are quoted the same as the cash market — even for the USD/JPY, USD/CAD and USD/CHF. This is great because it quotes the markets in prices we are used to seeing every day — it just makes it easier to trade!
These products all have similar specifications. Each pip (or tick) is about one U.S. dollar. This makes it easy to calculate your profit or loss with these contracts. If you have a 150-pip profit, then your profit will be close to $150.
To be able to trade these products, you will need a futures account.
FX Options on the ISE
I got started in the business working as a clerk in the S&P options — so you can imagine my excitement when FX options were finally launched. These new FX options from the ISE (International Securities Exchange) give access to the power of options — while limiting your downside. And because these are options, if you choose wisely, you can get incredible returns as market sentiment changes.
These contracts are extremely small! It is fantastic for those with a small account. I’ve been able to buy options for as little as $50 on the euro and the Australian dollar. When you buy options, your loss is limited to the amount you pay for those options. No more margin calls with these products.
The symbols to be able to trade these are:
For some brokers, these symbols may be considered to be indexes — like the .SPX for the S&P 500.
Please check with your individual broker for details on how to access these markets.
Editor’s Note: This article is just a highlight of an in-depth, 9-page report that Michael wrote for his Currency Profit Trader subscribers. Subscribers can access the full report online now. If you’re interested in learning more about Michael’s service, or about currency trading in general, you can find more information here.
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