A Petition to Change a Section of the Babypip's School

[phil838]

There is a section of the Babypip's school that, in my opinion, is giving new traders very bad advice. I'm referring to this page...

The Number One Reason Why Traders Fail in the Forex Currency Market

That page gives new traders the following advice:

No matter what the forex brokers tell you, don’t ever open a “standard account” with just $2,000 or a “mini account” with $250. The number one reason new traders fail is not because they suck, but because they are undercapitalized from the start and don’t understand how leverage really works.

Don’t set yourself up to fail.

We recommend that you have at least have $100,000 of trading capital before opening a “standard account”, $10,000 for a “mini account”, or $1,000 for a “micro account”.

So if you only have $60,000, open a “mini account. If you only have $8,000, open a “micro” account. If you only have $250, open a “demo account” and stick with it until you come up with the additional $750, then open a “micro account”.

I've highlighted the parts of the quote that I think are incorrect. I see at least one new trader every week that is scared to open up a live account with the $50-$100 they can afford because of this advice. They believe that such a small amount will hurt their chances of being successful, and I can't really blame them, since the Babypip's School says it will.

The problem is that it won't hurt them at all! If you open a micro account and trade the lowest lot size available, .01 lots, then your trade will have a value of one tenth of a cent per pip. Even with an account as small as $50 dollars this will allow you to open a trade with a stoploss of 500 pips and still be risking only 1% of your account per trade.

I think it's fair to say that most of the Senior Members of this forum would consider that a safe way to trade, so I really don't understand why the School suggests a minimum of $1000 to open a micro account??

What this suggestion is doing, from my observation, is causing people to open accounts with more money than they can afford to lose, or avoiding forex trading altogether because they believe they "cannot afford it."

The School is telling them that they cannot be successful unless they have at least $1000 to invest, but this is simply not true.

It's a strongly-held believe around here that most traders end up blowing their first live account. This is a belief I don't necessarily share, but if it's true I would much rather see a new trader open a $50 account and blow it up rather than save up $1000 (that they really can't afford to lose) and blow it up with a margin call.

So I'm hereby opening up a petition for the Babypip's Administrators to change the advice in the School and stop advising people to open live accounts with a minimum of $1000. Are their any Senior Members (or not-so-senior members) that will back me up on this one?

[Blaiserboy]

Phil

You can add me to the list.....!

My feeling is that it can make a person a bit sharper when using real money, even if only a few dollars.

[Sweet Pip]

You should have made a poll for this, but I agree.

Now, I'd like to petition the BC Securities Commission to lighten up on the restrictions for us. Unless I go somewhere perhaps not so credible, I can't even get a micro account!!!

[jado911]

where is the Poll, some ppl are too lazy to write 10 words.

[tonymand]

The general essence of this advice though is correct. Most people are woefully undercapitalised, expect to make a million overnight etc etc. The advice perhaps could be reworded along the 2% risk per trade rule and new traders pointed in the direction of brokers that allow less than 1/10th contracts so that they can stay within their predefined risk parameters. Now if we could only get them to understand the risk side of the equation!

[phil838]

Originally Posted by jado911

where is the Poll, some ppl are too lazy to write 10 words.

Good point... I tried adding one but unfortunately you can't edit a thread to include a poll after it's created.

[jado911]

Originally Posted by phil838

Good point... I tried adding one but unfortunately you can't edit a thread to include a poll after it's created.

are you sure?!

[rhodytrader]

Originally Posted by phil838

There is a section of the Babypip's school that, in my opinion, is giving new traders very bad advice. I'm referring to this page...

The Number One Reason Why Traders Fail in the Forex Currency Market

I will in general agree that the section could be reworked. I've long thought that it, while well meaning, just adds to the confusion and puts the focus on the wrong thing, namely leverage as opposed to money management.

That page gives new traders the following advice:

Given that Oanda, where many of us point newbies for very small account trading offers no minimum trade sizes, the information is at least a bit faulty.

The problem is that it won't hurt them at all! If you open a micro account and trade the lowest lot size available, .01 lots, then your trade will have a value of one tenth of a cent per pip. Even with an account as small as $50 dollars this will allow you to open a trade with a stoploss of 500 pips and still be risking only 1% of your account per trade.

Ummm...Unless I'm missing something, a micro lot is 1000 units (0.01 lots) and has a pip value of $0.10 (for the likes of EUR/USD). So 500 pips would be $50, or a 100% risk. For your math to work you'd have to do a 0.01 of a micro, meaning a lot size of 10 units ($0.001 pip value). Aside from Oanda, is there anyone else that allows trading sizes so small?

[rtv2]

phil838 is right.

Originally Posted by rhodytrader

Aside from Oanda, is there anyone else that allows trading sizes so small?

Would IBFX qualify with nano lots, and now no deposit minimums?

This would allow me to start trading for pennies also. Before the only other broker i would consider would have been phil838's advice about using Oanda. But i did not like the idea of using two platforms simultaneously.

Edit: Since i have played Texas Hold'em for real money, to me what phil838 says, and what he did with his account at Oanda makes perfect sense to me.

phil838 is an inspiration to us newbies on two different levels here at BP.
First, he started off with a small acount, $50 and grew that account to where he is today. That to me is like grinding it out and making your way up the stakes in poker & the lot sizes in forex. Second, he continues to contribute here at BP with his knowledge and strategies that he gives away for free. (There are others but he stands out to me in that if he can do it, others can too!)

There are many parallels to the strategies in forex and hold'em (poker). I am not the only one that can attest to that.

[phil838]

Originally Posted by rtv2

phil838 is an inspiration to us newbies on two different levels here at BP.
First, he started off with a small acount, $50 and grew that account to where he is today.

Thanks for the kind words rtv2, but just to set the record straight I have to point out that I didn't grow my account to where it is today from only $50.

I started my first live account with $50, and after three months of successful trading I added another $1000. Then, after another successful three months, I bumped up the account to $3000 and grew my account up from there.

Your confusion is my fault, though. I've told a lot of people that are worried about being undercapitalized that "I opened my first forex account with $50." I should start mentioning that I adding more money later.

That doesn't take away from the argument I'm making though. My current percentage of return would be exactly the same even if I'd never added more money. I'd just have to add about 5 years to my quest for a million dollars.

You can definitely get rich starting with only a few dollars, it will just take a little longer. Assuming you can make an average of 1% per week (which is a very reasonable and realistic goal), if you open an account with $10, and add an additional $10 to it every week, you'll have a million dollars in 13 years.