Almost a year ago, a fellow Forex trader and I got into a debate.

My friend said that someone couldn’t make any money in the Forex market without using a huge amount of leverage. In other words, you couldn’t make money trading foreign currencies without risking a lot of your cash.

It was an interesting debate considering that’s usually what keeps potential currency traders from trading in the Forex market. I always hear beginner traders say, “Forex is too risky.”

To which I always reply, “It’s only as risky as you want it to be.” That’s what I told my friend. I argued there were plenty of ways to trade Forex without risking a lot of your capital.

In short, he didn’t believe me. So I set out to prove him wrong….

The Experiment that Proved Me Right…

Over the next month, I opened what’s called a “micro account” with $1,000. A micro account is the smallest account that retail Forex traders use to trade currencies.

I started trading some pairs at first with only ONE micro-lot (1,000 units of currency), which is 10 times smaller than 1 mini-lot. Then I slowly increased it to a few micro-lots (still just 1/3 of a mini-lot).

Four months later, I was up 100% using my very slow and steady trading technique and my extremely small amount of leverage. By the time I finished my experiment later that month, I was still up 50% after a small pullback in the markets. Again using very little leverage.

I took my LIVE account statement to him and showed my friend. “See,” I said. “You don’t have to use tons of leverage to get decent returns…you just need patience.”

By the way, I know very few stock traders who make 50% a year on a single asset… much less 50% in four months.

Now of course, I was only trading a small amount of cash…but I could have just as easily traded $100,000 and made another $50,000 in four months using the same ratio of “light leverage.” Let me show you how…

Three Years of Stock Returns in Four Months of Forex Trading

You see, one micro-lot doesn’t seem like much at first. Neither does 1 mini-lot in a sizable account (ex. $100,000 account).

By the way, in case you’re unfamiliar with the term “lot” – that’s how leverage is measured in Forex. One “lot” lets you essentially buy or sell 100,000 units of currency (dollars, yen etc.). The lot represents this amount of a particular currency. One “mini-lot” represents 10,000 units of currency. And one “micro-lot” (what I used to prove my friend wrong) represents just 1,000 units of currency.

However, as you saw above, even the smallest positions, can add up large profits in this market over time.

After all, anyone who’s trading in an account will surely still want to trade that account four short months from now. However, if you start off slow and easy, you can still end up with a very large return a few months later.

Sure, there are traders that double their accounts in 30 days. These are the same traders that run the risk of “blowing up” their accounts within 30 days too.

It’s not impossible to trade Forex with less risk. You simply tailor your Forex trading to your own risk level. You do this by trading fewer lots in a smaller account, and adjusting your lot size so you minimize your risks over the long haul.

I’ll be back tomorrow with more on how to do that. Till then…

Happy Trading!
Sean Hyman, aka Professor FX

EDITOR’S NOTE: Ready to punch up your Forex trading to the next level? Did you know that exotic currencies can be as much as 500% more profitable than trading the regular majors…and they’re MORE predictable. Find out how you can add them to your portfolio here.