If you are just starting to trade currencies and thinking about moving to trade real money then starting to trade on a mini account is the best option. A few years back only wealthy people could afford to trade in Forex. However today you don’t have to be a millionaire to do that. That’s one of the reason that attracts so many new people to start trading the real money.
A regular lot is 100,000 of units of currency. That’s a large amount of money you need to trade. However some brokers have an option of mini lots that consist of 10,000 units of currency.
Many brokers give you the leverage to trade as high as 100. With such leverage tradiding a mini lot of $10,000 you need only $100. For trading a regular lot you need $1000.
That’s the basic reason why Forex trading is so popular. Most people can commit $100 or so to open a mini account and start trading currencies.
The value of one price point or pip is also smaller. If the value of price point for the regular lot is $10 then the pip value for a mini account is just $1 for the pairs where US dollar is a base currency. For other pairs the pip value is close to that number but varies with the price.
Trading a mini lot of 10,000 and with leverage 100 you need to commit $100. Depending on a currency pair you are trading a price change by one pip will cost you or bring you around $1 or 1% of what you invested in one min lot.
Therefore you always need to use a stop loss. Otherwise a move of 100 pips against your position will wipe out your investment of $100. So allowing price to move 20 or 30 pips against your account will mean setting your stop loss at that level.
While you grow your trading experience and your trading account size you may want to switch trading regular lot sizes. However depending on your brokers policy you can still trade in mini account but using 10 mini lots. That will give you the same profit potential as for the regular lot size. At the same time using 10 mini lots instead of 1 regular lot gives you advantage of taking partial profits. In other words you may have a lot more flexibility wit 10 mini lots.
Trading currencies was available only to those people who could invest significant amount of money from the beginning. That’s why mini accounts appeared to give the opportunity for people who don’t have large capital to be able to start trading in Forex.
There are also micro accounts offered by some brokers. You can trade with a micro lot of 1000 units that makes your risk very low. However before starting to trade currencies even on micro account you need to thoroughly understand the process on a demo account.
About the Author:
Albert Schmidt has been in the field of Forex Trading for a few years by now. He maintains a website about currency trading where you can find answers to the rest of your questions about how you can learn Forex trading.
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