Forex mini accounts attract many beginners to forex trading. These usually allow you to trade one-tenth of the standard lot size, which means that it is possible to trade with only one-tenth of the investment capital that you would need for a standard account.

Standard accounts date back to the time when forex trading was done by telephone connection with dealing desks. At that time there were very few private individuals involved and those who were, usually had plenty of money. It wasn’t cheap or easy before the internet so there would be no point unless you had a lot of money to invest. For this reason, standard accounts usually require a minimum investment of over $10,000 and some brokers require $50,000. From this type of account, if using 100 times leverage, a trader would stake 1,000 currency units to control a standard lot size of 100,000 currency units.

However, these days the internet has put forex trading within the reach of ordinary people who probably would not want to invest so much money from the start, even if they have it. To cater for these individuals, brokers began offering mini accounts where the lot size is one tenth of standard. That means that with 100 times leverage you stake 100 currency units to control a mini lot of 10,000 units.

Although the currency unit that you are dealing with might not always be dollars, for convenience we will assume this means that you are staking $100 on each trade. Think about that for a moment, because if you are not comfortable with that amount of risk, you probably should not be considering mini forex trading accounts.

The alternative is a micro account where you would trade with ten times less again. So generally this means staking $10 to control a position size of $1,000. Of course, your profits will be ten times less – but so will your losses.

It is important to think carefully before you start trading with a forex mini account. Many people are drawn to opening mini forex trading accounts with the absolute minimum of funds because they want the higher profits. What they do not think about is the risk. Of course you can set stop losses so that your risk is lower than the amount staked on the trade, but it is important to have the stop loss at the optimum point for your system so that it is not triggered by minor fluctuations.

So how much capital should you have to open a forex mini account with relative safety?

Some brokers will let you open a mini forex trading account with just $250 but it is much better if you have at least $1,000 and preferably $5,000 available for your trading, even if you do not put it all into the broker account right away. You must be able to withstand the occasional run of losses, both psychologically and financially. If $250 is all that you have in the world, you would be better advised to open a micro forex trading account. Forex mini accounts are too risky in that situation.

Filed under: Forex Brokers

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