How to start a trading business with $500

Please forget the idea of turning $500 to $50,000, or even to $5,000, within a short period. There exist many quieter and safer methods to grow your money. These work perfectly with $500 at the beginning. First, lower your return expectations. Instead, of 50% a month, I would act on the assumption of 20% annual return. If you can do that, you are good at it.

I know that I will probably disappoint some readers when I say making 1 to 2% a month are top performances. Nevertheless, they are actually top results, especially when you achieve this performance every month on a continuous basis.

Perhaps you are under the impression that you can earn $1000 a month with a $1000 account. I am sorry to disappoint you here, but such returns are possible only by incurring extreme risks. The chance that you will succeed at this, month after month tends towards zero. Get it out of your head! It will not work, and if this book can rid you of this illusion, my work is half-finished already.

I want to stress that there are alternatives to these exaggerated expectations. These alternatives are much more interesting and easier. You can realize your dream of a large trading account one day, but the path to it is probably different than you would imagine. Honestly, I wish I had someone said this to me at the beginning of my trading career. It would have spared me many years of futile attempts, trying to multiply a mini account using futures. Of course, you could collect experience in this way. However, these experiences I can pass on.

Who am I? I am a trader with over 15 years’ experience in the markets, who has witnessed all the vicissitudes of the trading business. I have traded for a hedge fund in forex trading, as well as for managed accounts. I know this industry and its tricks, very well. I have repeatedly witnessed this little drama of a starting trader, driving his entire trading account on the wall, and I have done it myself several times. I know what it looks like and how it feels.

The problem is not the money. One can get over the loss of $500. You gained experience. It did not work out, but it is not a drama. There are also people who start with a $50,000 account, even with a $500,000 account, and these accounts often also no longer exist after 3 or 6 months.

Therefore, it is obvious that it is not the amount of capital at stake. It does not matter if you start with $500 or $50,000. Something seems to be going fundamentally wrong in this trading business, no matter how much money you have available. This desire to increase the starting capital quickly seems to lead to exactly the opposite. This applies for at least 95% of the beginners. I must confess, this is one of the saddest statistics I know.

Imagine if 95% of bakery apprentices would fail in the bakery, because baking little breads is too difficult a profession. That this is definitely not the case proves that people are doing something right in the bakeries. Baking bread is a profession that you can learn, provided you are willing to get up early and follow the instructions of the Master Baker.

I declare herewith, that trading and currency trading are no more difficult professions than baking. However, the prerequisite is that the new trader is willing to get up early (though not as early as the baker's apprentice) and follow the instructions of the “Master Baker”.

Concerning trading, the first thing to take note of, is the instructions of the Master Baker. Unfortunately, this does not happen and that is probably the main reason the statistics are so disastrous, when it comes to success in trading. It is even worse. Not only are the instructions of the Master Baker not being followed, but also the “Master Baker” is simply not there. Most starting traders are just sitting alone in their room in front of the computer screen and romp through the market as they please.

This book is therefore about the instructions of the “Master Baker.” It is up to you, dear reader, whether you take note or not. At least the “Master Baker” has done his duty.

Most new traders, when starting out, have a small account. The sum may be different, but almost all of these traders start with the desire to increase this small capital sum quickly. This need is natural and understandable, but the urge to do so fast is the seed for future failure. Whether they start with $500 or $1000, most beginners feel that they are only a “small fish in the stock market.” They want to change this as quickly as possible.

They believe that the only way to get to a big account is to multiply their little account fast. Because then, if the account is large enough, they can quit their job and make a living solely from trading. As such, they begin to look for trading strategies that promise them the highest possible returns. That these strategies usually are associated with high risks, they stubbornly ignore and plunge headlong into the adventure of trading.

The result is that most of these $500 accounts no longer exist after a maximum of 3 to 6 months. The statistics show that this is the likeliest outcome. If you start trading with the need to increase your account fast, you will give this goal all your energy and attention. This means that you will not focus your energy on what you are supposed to do first: to become a good trader, hence, to acquire good trading habits.

Even if you have access to more substantial funds, I would still advise you against transferring these funds to a trading account. You are at the beginning of your trading career and certainly not yet in a position to manage this capital effectively and responsibly.

First it is wise to learn to trade only a small account. If you only have about $500 or even less to trade, I see it as an advantage rather than a drawback. I understand the desire to make money fast all too well, as I had this need too when I started. This need led me to concentrate on multiplying this little capital fast, rather than, learn the craft.

Admittedly, $500 will not get you far. However, it is important that you learn to appreciate even this small sum and deal with it responsibly. As responsibly as you would if it were actually $500,000. Irresponsible is, of course, the use of disproportionate leverage that most brokers, unfortunately, make available. With $500 you can actually trade $50,000 with many forex brokers, but that does not mean that you should do it.

In my experience, most beginners overleverage themselves in the market. For example, I have traded more than $200,000 in capital with only $2000 in my account. This naturally means stress and a lot of adrenaline. While some individuals are specifically seeking these thrills, it is an unprofessional trading technique.

The result is that these "traders", hold far too long to loss positions, and hope that the market will graciously turn, so that they can at least approach breaking even. There is a well-known internet video of a trader who allowed his losing position to grow to $ -30,000. He could not believe that the market had not followed his analysis and merrily ran against his position. This recording was the apotheosis of a completely unprofessional approach. You will definitely not become a professional trader in this way.

In addition, most beginners have exaggerated ideas of how returns can be achieved in the market. Definitely, you can make 50% per month, even more. However, you will have to take high risks (i.e. overleveraging) to achieve this. Eventually, this leverage is going to work against you. This usually happens via a catastrophic trade, such as in the aforementioned video, which destroyed the entire account of the trader within few hours. I speak here from personal experience.

You never know from which corner your next career step will come

The professional is looking especially at how this return is achieved

Private investors want the highest possible return

The mind-set of a professional is thus different from that of a private investor

trading journal, with detailed statistical analysis, is essential

Try to keep a conservative risk management.

Try to trade in a disciplined matter for at least one year

Scalping works well on smaller accounts or if you stay privateer.