Big Profits with Small Accounts?

Boris Schlossberg

As retail traders of margined products, we all face the same dilemma. We want to make money but realize that leverage will inevitably wipe out our capital in the end.

When I was at FXCM we used to run the “King of the Mini” contests every month. Every month some guy would turn 5,000 bucks into $25,000 and bask in the glory of recognition.

Yet throughout all those years, all those months of contests all those great attempts at making big returns, not one winner ever repeated his feat.



The reason, of course, is that most of the winners were the classic “have-a-hunch-bet-a-bunch” traders who caught a big move in some highly trending pair and just kept adding to their position. It didn’t hurt that in those days volatility was three times greater and you often saw 500 – 800 point moves in a month.

Yet even guys who traded systematically could never repeat their winning ways because leverage always tripped them up. Remember that leverage is the true bet in the currency market. Dealers aren’t betting against your analytical skills to read the market or your facility with execution. They don’t have to. They bet that the law of large numbers will always wipe you out through leverage.

Just like dealers in Vegas couldn’t care less about your next roll of the dice or for that matter your next hundred rolls – all of which you may win – so too FX dealers could care less about your next trade or your next hundred trades. Both businesses are betting on the asymmetry of the odds in their favor. In Vegas, it’s the closed nature of the games that always makes the house a winner over the long run. That’s why casinos are more than happy to ply you with free drinks and keep you at the tables for as long as they can. The longer you stay at the dealing table, the higher their chances of emptying out your pockets.

Fortunately for us, the markets are not fixed outcome bets with guaranteed payouts to the dealers, but here the dealers are making a very different bet. In levered markets they simply have to bet that you will trade too large just once and that will be enough to wipe out all your prior wins and then some guaranteeing them a profit. And of course, you will. Because no one is 100% accurate ever.

If you trade at 100:1 leverage your chance of survival is 1%. At 400:1 leverage its 25 basis points at best. Put another way your chance of failure at 400:1 leverage is 99.75%. Although this is not really true mathematically, it’s close enough to the actual truth that you should use those numbers as mental shortcuts to assess your chances of success.

So given the crushing nature of leverage is there ever a way to make big money from small accounts?


They say that diversification is the only free lunch on Wall Street so here is an idea.

Diversify both by strategy and product. This Saturday I am teaching a webinar on every BK strategy I ever created. Going back through the strategies in preparation for the show I was shocked to see how many of them were still working well. Their edges weren’t fantastic (on average each strategy was basically banking 200-300 pips a year), but as Senator Dirksen once remarked, “A billion here, a billion there and pretty soon you are talking real money.”

So idea one is to create a separate brokerage account for each strategy. But don’t stop there. Create a separate account for each FX pair per each strategy so that you can sandbox risk as much as possible.

We know that in FX the same strategies could have wildly different results on different pairs. What works on GBPUSD may not work on AUDUSD and crosses are a whole separate issue altogether. So to protect yourself from the idiosyncratic risk of one bad trade blowing up your whole account here is the full idea.

Say you have $10,000 or risk capital. DON’T put it in one account. Create 10 separate trading accounts of $1,000 each. Say you have 3 good strategies to trade. Trade one strategy and one pair per account. So, account 1 has Strategy 1 EURUSD, account 2 has Strategy 2 EURUSD so on and so forth. At the end, you have 9 accounts that are trading 3 strategies on EURUSD GBPUSD and USDJPY the last account is just a cash reserve account. You trade your ideas on 10:1 maximum leverage (because that is the maximum I believe you can ever get away with).

Here is what will happen. One of your accounts WILL BLOW UP. But that’s a good thing. All the damage will be isolated to just that $1000.00 of capital. This is really good news both financially and psychologically. The broker’s margin call software will instantly liquidate you, effectively providing the stop that you are either mentally unwilling or technologically unable to take yourself.

But there is a much bigger psychological value to creating this structure. Every single blow up I’ve seen starts with a refusal to recognize a loss. The more money you have in the account the easier it is to let the loss float and fester like an infected wound until amputation is basically your only choice. Segregating your funds this way makes it much easier to get rid of bad trades. Physiologically blowing up a $1000 account is much easier than taking a $1000 loss in a $10,000 account – and since you have no say in the matter anyway – the hard decision is made for you. In the meantime, the accounts that are working could be doubling your money in year’s time – turning you into The King of the Mini.

EURUSD – The Big Breakout

EURUSD – The Big Breakout

Chart Of The Day

EURUSD has been on a tear today challenging the long term resistance levels at the 1.1300 figure. The rally has been triggered by hawkish comments from ECB Chief Mario Draghi who sent euro soaring in early morning European trade when he indicated that ECB policy may soon move to neutral from accommodative and stated that the recovery in the Eurozone is in full bloom.

Speaking at an ECB Forum on banking Mr. Draghi painted a generally upbeat picture of economic conditions in the Eurozone noting that the central bank sees EZ growth above trend and that all signs are now pointing to a strengthening and broadening recovery in the region.

Mr. Draghi, however, added that inflation remains muted and that it not yet durable or self-sustaining. Still, he affirmed that policy is likely to change to a more neutral stance in the near future, suggesting that ECB may be making preparations for a taper.

All of this provides a very bullish foundation under the pair and could propel it towards the 1.1500 level over the near term horizon especially if EZ growth continues to accelerate while US growth remains sluggish.

NZDUSD Big Trade 05.09.2016 – LIVE


Triggered on NZD/USD Entry

NZD/USD Big Trade Orders

Place Order to Sell NZD/USD at 0.6785

Stop at 0.6950

The U.S. dollar remains in control this morning and its strength is driving all of the commodity currencies lower. Last night’s Chinese trade numbers illustrate the challenges facing countries supplying to China. Although the trade balance improved exports plunged, which is a sign of big trouble for countries like New Zealand. AUD is also a sell but it more deeply oversold and vulnerable to a sharper recovery than NZD.

USDCAD and EURGBP Big Trade Orders 05.09.2016


BK Big Forex Trades

Some “just in case” orders if USD/CAD or EUR/GBP retraces overnight.

1. USD/CAD Big Trade Order

Place Order to Buy USD/CAD at 1.2915

Stop at 1.2715

USD/CAD broke above 1.3000 after early gains in oil prices turned into significant losses but profit taking caused the pair to end the day below this key level. We believe that the pair will another run for 1.3000. Canadian housing starts increased by a smaller amount, reinforcing the slowdown in Canada’s economy. The wildfires in Canada continue to burn but have apparently reached a turning point thanks to light rain and wind shift. Officials say that production could be brought back online within a week. If USD/CAD closes above 1.3000, there’s no stopping the pair until 1.3200. Like USD/JPY, positions were heavily skewed towards a further decline and the velocity of the pair’s reversal could prompt a more aggressive rally as key levels are broken.

2. EUR/GBP Big Trade Order

Place Order to Buy EUR/GBP at 0.7885

Stop at 0.7685

German industrial production and UK trade numbers are scheduled for release on Tuesday. Given the sharp rise in GE factory orders and increase in German PMI, we’re looking for an uptick in tomorrow’s manufacturing sector index. The risk for the UK report on the other hand is to the downside after the sharp fall in their PMI manufacturing index. While the Eurozone would be negatively affected by Brexit, the first shock will undoubtedly be to UK assets so EUR/GBP still has further upside before a correction.

BK Big Trade USD/CAD Long 05.04.2016 +53


5/4 – Close USD/CAD at market 1.2873

Moved quickly we hit 1.2858 for +53

Reload at 1.2825, Stop at 1.2625

Buy USD/CAD at market (now 1.2805)

Stop 1.2630

We’ve gotten a serious trend change in USD/CAD after this morning’s horrid Canadian trade balance numbers. Friday’s employment report is likely to show weakness as well after the strong numbers from the prior month. A break above 1.2800 paves the way for move to 1.3000.

New AUD/USD Big Trade 05.03.2016 +45


5/4 Close AUD/USD at market (now 0.7455) for +45

Its finding support right at the 38.2% Fib of this years rally (0.7450) so it could bounce from here and if it does, we’ll have the following reload orders on to take advantage of the move:

Sell AUD/USD at 0.7490 Stop at 0.7690

AUD/USD Sell entry at 0.7490 Triggered

5/4 – Lower AUD/USD Big Trade Entry to 0.7490, Stop 0.7690

New AUD/USD Big Trade

Place Order to SELL AUD/USD at 0.7530

Stop at 0.7730

The Reserve Bank surprised the market with a 25bp rate cut, sending the Australian dollar to its lowest level in more than 5 weeks. Considering that long Australian dollar positions were hovering at their highest level in nearly a year, today’s decline is mostly likely a precursor to further losses as more AUD/USD traders bail out of their long positions. Today’s decline is also significant because it takes the currency pair beyond the 50-day SMA, 75 cents and the April low. We expect a smooth ride down to 74 cents and possibly even 0.7350. Aside from their frustration with the low level of inflation an subdued labor costs growth, the “Fed’s reluctance to normalize policy and signs of global economic slowdown have clearly changed the calculus for RBA which as recently as last month appeared to be content to keep rates stationary for the foreseeable future” according to our colleague Boris Schlossberg.

NZD/CAD Big Trade 05.02.2016 – LIVE


NZD/CAD Trade Triggered, Set Profit Target at 0.8750

New NZD/CAD Big Trade Order

Place Order to Sell NZD/CAD at 0.8800

Stop at 0.8910

Fundamentally we’ve seen strong gains in NZD and CAD but recent economic reports show more underlying strength in the Canada vs. NZ economy. Friday’s Q1 GDP report surprised to the upside, Canadian retail sales are up, consumer prices increased and over 40k jobs were created in the month of March driving the unemployment rate down to 7.1% from 7.3%. New Zealand in contrasts battles with a wider trade deficit, weaker manufacturing and service sector activity. This is an important week for Canada. Oil prices are strong, creating the ideal conditions for a resumption of the downtrend in NZD/CAD. Technically, we’ve seen nice bounce in NZD/CAD off the,lows and NZD/CAD is one of our most successful ValueTrader currency pairs with 86.67% accuracy this year. 88 cents is also significant resistance – making it the perfect level to be faded.

GBP/CAD Big Trade Orders 04.28.2016 – LIVE


5/2 – Entry lowered to 1.8400, Triggered, Set target at 1.8375

GBP/CAD Big Trade Orders

Place Order to Sell GBP/CAD at 1.8410

Stop at 1.8610

Fundamentally we’ve seen strong gains in sterling and the Canadian dollar but recent economic reports show more underlying strength in the Canada vs. U.K. economy. Canadian retail sales are up, consumer prices increased, manufacturing activity accelerated, over 40k jobs were created in the month of March and the unemployment rate dropped to 7.1% from 7.3%. The U.K. in contrast has reported mostly weaker economic reports ranging from lower retail sales, employment and industrial production. So the downtrend in GBP/CAD should reman intact. Technically, GBP/CAD is one of our most successful ValueTrader currency pairs with only 1 loser this year. This strategy identifies ideal entries in the direction of the trend.

Canadian GDP numbers are scheduled for release on Friday and given the rise in retail sales, we believe the risk is to the upside for the report.

Big Breakout in GBP/USD

Big Breakout in GBP/USD

Chart Of The Day

Big Breakout in GBP/USD

For the first time in more than a month GBP/USD broke above 1.45 and while it did not close above that rate, the currency pair has broken to the upside and now a move to 1.46 seems likely. Although part of today’s move can be attributed to the improvement in the CBI industrial trends survey, the main reason for the currency’s strength and its complete disregard for recent data disappointments is Brexit. Leaving the European Union poses significant risks for the country and the region as whole but with traders spending the better part of the year taking on Brexit bets, what we’ve seen in recent weeks is widespread short covering. With less than 2 months to go before the E.U. referendum, positioning is playing a very big role in the performance of the pound. Recent U.K. data has been terrible but instead of falling, sterling rallied as investors reduced their short positions. While it may seem counterintuitive they are interpreting every negative headline as a reason for voters to favor remaining in the European Union. That includes President Obama’s latest warning that it would take the U.K. a decade to negotiate a free trade deal with the U.S.

Technically, the latest move in GBP/USD takes the pair firmly above the 100-day SMA for the first time since September. Today’s high of 1.4520 marks near term resistance but 1.4640 and 1.4670 is the primary area of resistance. Support on the other hand is below the 100-day SMA at 1.4400.

2 New Big Trade Orders 04.21.2016


2 New Big Trade Orders

**Since both of these orders involve NZD, if one triggers, cancel the other


Place Order to Sell GBP/NZD at 2.0710

Stop at 2.0910


Place Order to Buy NZD/USD at 0.6890

Stop at 0.6690

We are finally getting a pullback in the commodity currencies that should give us the opportunity to join the uptrend in NZD. Between the surprise increase in consumer prices and rebound in dairy, the RBNZ has no reason to rush into a rate cut next week. A pullback to 69 cents would be a great place to establish a long entry for a move back to 70 cents. In an environment of extraordinarily low rates, NZ’s 2.25% yield has and will continue to make NZ attractive.

We also like SELLING GBP because data has been terrible. A larger number of people filed for jobless claims in the month of March and more importantly average weekly earnings growth slowed to 1.8% from 2.1% in February. Greater unemployment and slower wage growth is bad news for the U.K. economy and particularly for spending. Retail sales numbers are scheduled for release tomorrow and this slowdown in wage growth combined with the big drop in spending plus shop prices reported by the British Retail Consortium puts the risk to the downside for the report.