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Forex Mini Accounts - How to Use Them

 


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Forex Mini Accounts are accounts designed to trade on a smaller level. Account minimums can be as low as $100 to get started. These accounts were created to capture the majority of the population that is interested in trading, but do not have the funds or the experience to open a traditional account.

These accounts trade in smaller contract sizes of 10,000 units, as opposed to a regular accounts contract size of 100,000 units. 1/10th the size of a standard contract. The mini accounts trade size gives traders the option to trade live with less risk or exposure. In addition, these accounts allow traders to familiarize themselves with a particular trading firms quality and reliability before progressing to larger trades.

There are several positive advantages to opening a mini account. First, a mini account will allow you to take the time to develop a trading strategy. Losses can and will occur. A trader's ability to limit those losses is key. Because the pip value on these accounts is much lower, traders can focus on being disciplined and basing their entry and exit strategies on pip movement and market conditions. Traders must learn not to trade based on emotions.

Another advantage to mini accounts is that you can start out small, learn and build up your confidence. As you become more educated and your comfort level increases, you can slowly increase the size of your positions or the number of lots your trade.

Forex mini accounts are perfect for someone who wants to start out with less than $10,000 to invest. Again, some firms offer minimums as low as $100 to open these accounts. What the mini account does is open up foreign exchange currency trading to a much greater population. It limits the risks to newcomers and is a great way to get experience in the trading world.

Mini accounts have many of the same features as a regular account. You trade using the same platform as a regular account. The major difference is the size of your investment, which limits your risk while you are getting started.

The key to trading is leverage. Leveraging allows you to trade more of a currency than you have money in your account to do. With Forex mini accounts, the margin deposit requirement per $10,000 lot of currency traded is $50. This means that the leverage is 200 to 1 (10,000/50). So, with $250 you could trade a maximum of 5 lots in your account. Again, care must be taken when using leverage. Profits can be increased, but so can losses. But at least the leverage found in these smaller accounts provides the trader with a greater flexibility in the execution of different trading strategies.

Profit and loss is easy to calculate when trading on the mini accounts platform. In most currency pairs, a one pip (or tick) movement in the exchange rate is equal to a $1 gain or loss in the account value per lot.

Most firms do not charge commissions on forex accounts. The firms are compensated for their services through the bid-ask spread, thus allowing the trader to utilize more of their funds for investment.

There are several online firms that offer mini accounts in addition to standard accounts. Just like any investment, care should be taken to fully research the companies you are considering before ever sending them any money. With a little education, diligence and desire, you can soon start trading Forex.

Kim Lehman holds a Masters Degree in Business and manages a website dedicated to assisting others with financial matters at http://www.yourfinanceinfo.com The website is constantly evolving, adding new information as it becomes available.

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