One of the most commons emails I get is about “trading with a small account”…
And it is always a tough one to answer.
Because there are so many aspects to trading with a small account… And so many myths and bad info everywhere about what to do if you want to be a trader but don’t have a ton of funds.
Most gurus will tell you “Trading is the best and fastest way to get rich, even if you only have a small amount of money to work with“
Actually, in most cases, it is not.
Here’s what I mean…
Yes, trading and investing is the best way to grow your wealth.
But, it’s being able to leverage your money that generates more money.
So if you don’t have much money, the principle doesn’t work too well…
If you have a few hundred dollars in an account and make 20 or 30 percent a year, it is true that eventually you’d build wealth.
But one thing that most traders forget to consider is “How much time did it take you to make 30% on your account this year?”
The answer I normally get is a few hours per day.
So, essentially, if you started with 500 USD and turned it into 1,000 USD in a single year (which is a PHENOMENAL 100% Growth), you probably worked around 500 hours for that 500 dollars… or about 1USD per Hour.
So even with the incredible growth you had from a percentage standpoint, you actually did not value your time much.
You could have spent 500 hours working at a minimum wage job and you would have made 5 times (or more) the amount of money.
So that is why I always tell people that trading with a small account is fine, but you should always consider if the “small” account is still big enough to earn you a legitimate “paycheck” for your time.
If you’re ending the year making 50 cents per hour that you’ve put into your trading, then you may want to put those hours into a different revenue source until you have enough saved up to leverage it more.