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Forex Mini Account Trading: Why Is It Crucial For Individual Forex Traders
Currency trading mini accounts are suitable for just about anyone who is starting out in currency trading. You would have to be very rich or very optimistic to begin with a standard account if you are a retail trader (i.e. somebody trading on their own account from home). A mini account allows you get involved without risking huge amounts of money and this makes it a very attractive alternative for most people.
Mini foreign exchange trading accounts commonly allow you to trade with just one tenth of the normal lot size. This usually means 10,000 units of currency instead of 100,000.
Certainly you do not need to have this much in your account. Foreign exchange trading works with leverage. If you are using 100 times leverage then you must have $100 to control $10,000 in your mini account or $1,000 to control $100,000 for a standard account.
$100 or 100 units of other currency per trade is enough for most traders to commit to a trade when they are starting out and that is why the mini trading account is so popular.
The pip size is also usually smaller in a mini account. Pips are units in which you will measure your profits, losses and costs (the spread). Their dollar value can vary depending on the forex cross that you are trading, the lot size and other requirements of your broker, but common standard pip size is $10 and mini pip size is $1.
Most brokers are now quoting prices to 5 digits behind decimal point which in fact would make one pip 0.00001 of the quoted price, but we will continue to use the standard 4 decimal place pip for this example.
So if you have a standard forex account you may put up $1,000 on every trade, be involved in trading lots of $100,000 and calculate your profits in $10 units.
If you have forex mini account you can expect to put up $100 or its multiple on each trade, be involved in trading lots of $10,000 and calculate your profits in $1 units.
Certainly you can set stop losses so that you do not have to risk all of the money that is committed to the transaction. But your losses will be calculated in terms of pips so these too will be 10 times greater in the standard account.
If you are profitable and your fund grows, you may want to move up to trading larger sums. You may still do this in your mini account by trading more than one lot at a time. So if you intend to trade a standard lot size you would just trade 10 mini lots. This has the advantage of still giving you the possibility for fine tuning of your risk because your pip size is still just $1.
The standard account used to be all that was available before so many individuals had powerful home computers and high speed internet connections that made it viable for the average person to trade from home. The currency trading mini account is an achievement that has opened up the market to individuals who have the technology but not the money for standard foreign exchange trading investment. Even if you are beginner trader, using reliable forex signals you can rake up significant capital within a relatively short time. Accurate forex signals should be an integral part of every individual traders' forex trading strategy.
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