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

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1

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 [B]$1,000 for a �micro account�.[/B]

So if you only have $60,000, open a �mini account. If you only have $8,000, open a �micro� account. [B]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�.[/B]

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. :slight_smile:

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? :slight_smile:

2

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.

3

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!!! :mad:

4

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

5

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!

6

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?

7

phil838 is right.

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.

8

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

9

Yes, there are plenty of brokers that allow you to trade 0.01 micro lots.

Like rtv2 pointed out, IBFX even offers nano accounts now. You can trade a 10 unit position at IBFX with only a micro account, but if you get a nano account you can go even smaller.

10

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. :slight_smile:

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. :smiley:

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.

11

are you sure?!

12

No it doesn’t. You were just smart about your business by starting off with a small account and then going on from there, irrespective of the added amount.

The record is straight and you did it correctly, most sob stories i hear are exactly what BP teaches (in this one respect) and what you are trying to correct! That is starting off at the larger stakes table, $1000 or more, when it is totally not necessary & unwarranted, especially given now that nano lots allow one to learn to invest properly with pennies!

And personally i don’t believe you have to clarify anything, your commitment to this site (BP) is without question and above reproach!

From the Wall Street Jounal Small Investors Make Big Bets on Currencies

What happens if there is an explosion in the Forex market, with micro/nano investors, just like there was in online poker? Where will BP be? I believe they will change this, however it will take time.

and by the way thanks phil, for standing up to change this!

13

What an odd place to have the poll option… I never would have thought to look there.

The poll has been added. Thanks Jado!

14

Glad I could help :slight_smile:

15

Regrettably, I have to offer a dissenting voice here. You make some very valid points and you are absolutely right in saying that you can build up an account from any figure - if you have the discipline and skill.

My argument is that a newbie by definition wont have that skill. And trading such small sizes will encourage the new trader to take greater risks and develop bad habits as making a couple of cents per trade for what will be a lot of stress and hard work will affect their psychology.

I think it is most likely true that most traders burn their first account. And quite a few burn a second too. If they can only afford $50 to trade with then they are unlikely to be able to afford to burn it. Rather, what should be stressed to new traders is that their first account should actually be a demo and until they can prove to be profitable with that they should avoid trading with real money.

Increasing your account as you reach profitability milestones is an excellent way to manage your risk whilst capitalising on your growing ability to trade and perhaps there is indeed some medium ground between a $50 starting account and a $1000 dollar account.

However despite my dissenting voice I do agree with your initial point that the section is too rigid and discouraging and as such needs re-writing!

16

I am sorry but I think that newbie should start trading with micro, nano account. And I am even for trading with less than 50. Imagine all the procedure that should be take for opening an account of 100 and lose all after ?

We all know that generally newbie lose all their fund in their first account, even second or third.

If you are not able to make 200$ from 10$, you will never be able to make a million from 1000$. So at less this could be a good start for stop dreaming and starting real trading realities. To know if you are good for this or not

17

I’m guessing the babypips thing was written when lot sizes weren’t conveniently offered below 0.1? At any rate emphasis shouldn’t be on accusing leverage or undercaptialisation as killers but rather entry sizes*. If someone’s unable to manage say 500 dollars with a maximum of 0.01 lots which allows for 50-100 pip leeway for 1-2% risk per trade they definitely shouldn’t be allowed to get their hands on a $10000 or $100000 account. If they’re incapable of controlling their lot sizes in the first place they probably shouldn’t be trading any sort of money really. (Just remembered there have been times where I’d be using 0.1 lots with 250 dollars, and 0.25 lots trying to get somewhere with 250 equity with a broker before that who had a minimum $25000 per trade. Fairly obvious what became of those trading sessions)

*I think many would agree that leverage is NOT an inherent killer, rather its the fact that it gives a trader unreasonable access to lots way beyond their means eg. 100-200k on a 1000 dollar account. That said leverage is in fact a necessity on the micro accounts, i.e. 1k entries (0.01 lots) for a capital of anything equal to or less than $1000 you’d want to be using as much leverage as possible to avoid a margin call the moment you enter i.e. allowing for 2% risk trades to have a 200 pip stop which is more than reasonable

18

Hm, a knives blade has two edges. If you know the rules, you can break the rules, if you have a good reason.

There is one thing I experienced: The more capital you own, the less bound are you to tight stops. I coded some EAs and all of them, regardless which system I used, show all together: If the stops are too tight, you lose over time. The noise is just too high.

The trade needs some space to breathe. On the other side one of my EAs show me that a mini account could start with around 500 bucks. So, that’s around 50 bucks for a micro. Wouldn’t start with less and better a bit more. So, my suggestion is 1000 for a mini and 100 for a micro to have some space to breathe for the trades and some buffer. But letz also face the truth: Those EAs are trading without of emotion, well backtested and with several risk fuses. So, those values are not too high at the pips school. Brokers who give you accounts with 1 buck are in my opinion not a good choice.

Just my 2 cents. I guess there are a few other things what could improve the school: Like to tell people that maximal broker leverage is better and real leverage is worse. So, I mean to split that and tell people about the difference of maximal broker leverage and real leverage. Before I found that out while reading along the forum I believed in minimum broker leverage is better, but that was totally wrong.

Anyways, I learned a lot from that school. Nothing is 100% true in all circumstances.

19

Chances are they are “wagging the dog”. We need to uncover their motives.

20

Would you be so kind to explain this?