Don’t have £20k to invest? … Or £5k …?
Are you fed up of hearing about trades who’ve made £1,000s each month off the back of their £50k pot?
The world has seen a backlash against the ‘elite’ and the privilege that allows the rich to get richer …
But what about the small-time investor? Who only has a few hundred pounds to invest?
Trading is often seen as a rich-man’s game. With the ‘cheap’ end of the market full of dodgy scams.
But, if you know which pitfalls to dodge, it’s perfectly possible to match the gains of much wealthier investors. These are the 6 key facts you need to know …
1 • Don’t ‘take a punt’
Traders with small funds can easily be drawn into a gambler mentality. I often hare people tell me that they’ll trade with high risk, high stakes, just until they’ve made enough capital to bring down their risk to a sensible 2% level.
The result is (unlike most things in trading) very predictable … they get blown out long before they’ve achieved that level.
Conversely, traders with large funds tend to be more prudent (maybe that’s how they grew those funds). Just because your fund is small, doesn’t mean it’s expendible. This is your opportunity to build something really sizeable – treat it with respect.
2 • Love every £10 gain
If you’re trading with £500 and your method brings you 3% at the end of the month … that’s an extra £15 in your pocket. You could be forgiven for wondering what the point is.
But that’s exactly the kind of return you should be looking to achieve – just keep plugging away and compounding your profits.
Yes, it’ll take you a few more years to reach your goal that someone who started out with £5k, but if you go in too hard, with high-risk, high-reward trades, you’ll never reach those goals at all.
So, don’t knock the £10s, the £20s … these are the small steps towards genuine wealth.
3 • Reject the usual dross
Carrying on from my first two points … we want to avoid the high-risk promises of ‘easy money’ optioins that are peddled to small-time investors. I don’t know about you, but my inbox is full of them … just a few £1s invested … and you’ll have turned it into £10,000 by the end of the month.
The main culprits among these schemes are scalping strategies, which have high costs (often not factored into the profits promised). And, it’s true that sometimes these systems will have amazing runs, producing stellar profits … but they’ll also have downturns – and it’s these kinds of ups and downs that small funds just can’t weather.
Another popular choice for the ‘little guy’ is penny shares. These (as their name suggests) are dead cheap to buy and – if you get it right – could grow up to be the next Apple or Microsoft. But there are so many variables at play here, and penny-share investors have to kiss a lot of frogs before they find their prince! This kind of game is just too risky for small funds.
And the final culprits are binary bets … simple yes/no bets on market outcomes that so rarely make money for the investor that they are now facing a ban by EU regulators.
4 • Look for the smooth & steady
For all the reasons we’ve looked at already, small investors are going to be tempted by the idea of a ‘big win’. If you’ve got a £500 fund, and get a £200 win – you’ve given yourself an enormous leg-up, saving months of steady plodding.
However, ‘big win’ trading methods almost always come with volatile ups and downs, as those ‘big wins’ are balanced by ‘big losses’. So, you might make 50% one month … +20% the next … then lose 40% the next …
Compare that to a steady 3% per month, and if you’re compounding, you’ll make more money, without the risk of wiping out.
(£1,000 + 50% + 20% – 40% = £1,080 compared with £1,000 + 3% + 3% + 3% = £1,092.73)
5 • What your perfect method should look like
- Look for tight(ish) stops so you can use minimum stake sizes and keep risk tight. For example, if your stop distance is 30 points, and your stake is 50p, you’re risking £15 per trade, which is a manageable 3% of a £500 fund.
- But don’t let stops be so tight that you’re straying into scalping. For example, if your stop distance and profit targets are both 5 points, and you’re paying 1 point in spread costs – that’s 20% of your profits already eaten up.
- Avoid obscure, expensive markets, which have high spread costs and may have a higher minimum stake.
- Insist on smooth(ish) profit curves (all trading methods will have some drawdowns). While past performance can’t guarantee future behaviour, it can give us a good indicator of the kinds of ups and downs we can expect. With a small fund, you can’t afford a 50% drawdown – this could force you below minimum staking levels, so look for smaller, steadier profits.
6 • How I want to help you with this
With Trader’s Bulletin, I’m always looking for ways to help us ‘little guys’ access the best profits. But I’m also very cautious about what I recommend, because I know how tough it can be to get together that initial investment – it’s vital to choose wisely.
Plus, that initial layout to get education, or buy a trading system – it’s galling to eat into a modest fund before you’ve even started trading.
That’s why I try to bring you the best systems, with minimum effort and outlay required by you. If you’re not already subscribed to the Trader’s Bulletin weekly newsletter, I recommend you add your name to the list (you can find a subscription box at the side of this page) – that way, you’ll be one of the first to hear about the best systems and the best offers.