See the Difference: Small Capital VS Big Capital

Last week, we posted an article which concluded that there is no fixed answer when it comes to determining a starting capital for forex trading. One should do what one feels comfortable and reasonable instead of adhering to a solid number because trading is all about 80% psychology with only 20% in execution and analysis.

For more information, you can read this article here: https://www.wikifx.com/en/newsdetail/202209158114807006.html 

To make this article easily understood by everyone, we will be demonstrating the difference in 2 examples.

Trade risk is calculated based on this formula below:

Example 1: having $100.00 trading capital

If you want to risk only 1% of $100, the stop loss should be placed where you are only losing $1.

If you place a trade on GBP/JPY, trading a lot size of 0.01, your stop loss order is 10 pips. If you have a position size of 0.01, your stop loss will be just 1 pip which is not realistic at all!

Example 2: having $1,000.00 trading capital

We shall maintain the same percentage of risk in this example as well. 1% of the $1,000 will be $10. Therefore, if you are trading a lot size of 0.01, your stop loss could be as far as 100 pips away. On the contrary, for a lot size of 0.1, your stop loss is 10 pips away. Not only does this provide more flexibility in the scopes of adjusting the size of stop loss, but it also allows a trader to have a bigger lot size while still keeping the risk in check reasonably.

Although you have seen how impactful a change in trading capital could be to ones trading strategy and plan, do not be discouraged by any means if you only have a limited amount of funds to start with. You can always work your way up by compounding. Also, learning how to trade with a small fund is always a lot more beneficial because you have lesser to lose when you are still an amateur.