Mini Accounts: A Great Way to Get Your Start in Currency Trading

By: Ray Chong

Like anything in life, forex trading involves risk, but can be extremely lucrative. The key is to learn how to manage the risk, and one of the best ways is by starting small with a "mini" forex account The great thing about mini forex accounts is that they can be opened with as little as $250 and you can gain the experience and skills with very little risk.

Let's look at the difference between a mini account and a standard forex account. In a standard account, the lot or trading contract size amounts to 100,000 units of the base currency--in the case of USD, that would amount to $100,000. A mini forex account will handle only a percentage of a single lot, which means that mini account contract is one-tenth the size of a standard forex account contract. The pip values in mini forex trading are also one-tenth the normal value.

Mini account trading does involve engaging in marginal trading. That means that you are making use of leverage, or in other words, borrowing money to be able to perform a trade without having to invest the full amount required for a single lot. The investment that you pay for out of your own pocket is called a marginal lot. For a mini account, the marginal lot for every $10,000 lot is $50, which is a 200 to 1 leverage. On starting a mini account with a minimum of $250, you are trading five mini lots with your investment.

Should you be concerned that the mini account requires a high degree of leverage as compared to other forms of trading? For example, stock market day trading has a leverage ratio of 4 to 1 in a trading day, which is far lower than the leverage ratio of mini account trading is 200 to 1. But this is the standard practice in mini forex trading and traders and brokers do not see it as over-leveraging.

When you look at what happens in mini forex trading, you will find that the trader’s risk is offset by smaller amounts of potential losses. An average loss in mini account trading is one-tenth the amount that would be lost in an equivalent trade on a standard forex account. That makes it easier for mini forex traders to follow a disciplined trading strategy, since a trader normally finds it simpler to let go of a small loss, whereas a greater loss may prompt an investor to hold on longer than one should to a declining currency. The high leverage in mini forex trading also gives an investor more options and trading strategies in currency trading.

No matter what market you plan to eventually trade, if you're new to trading check out what mini account have to offer.

Article Source: http://www.find-investment-advice.com

Ray Chong is a trader and educator who advocates simplicity and logic. Visit his website to learn a trading technique that people say is actually better than a stuff they've paid for - www.tradinggap.com

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