What are the advantages of using a mini forex account for trading?

By Ayton MacEachern AAA
A:

A mini forex trading account involves using a trading lot that is one-tenth the size of the standard lot of 100,000 units. In a mini lot, one pip of a currency pair based in U.S. dollars is equal to $1, compared to $10 for a standard-lot trade. Mini lots are available to trade if you open a mini account with a forex dealer and are a popular choice for those who are just learning how to trade.

Advantages of a Forex Mini Account
Mini forex accounts require a relatively small amount of upfront capital to get started. This can be ideal for those looking to learn about trading currencies but who do not want to put much money at risk. In many cases, a mini account can be opened with as little as $250 in starting capital. Even though it is an advantage to open an account with a small amount of upfront capital, it is also important to realize that using leverage could make things much riskier if the currency pair makes a small adverse move. This problem can be reduced by starting with more than the account minimum to make the amount of leverage more manageable. (For related reading, see Forex Leverage: A Double-Edged Sword.)

Traders with a forex mini account are not limited to only trading one lot at a time. To make an equivalent trade to that of a standard lot, the trader can trade 10 mini lots. By using mini lots instead of standard lots, a trader customize the trade and have greater control of risk. For example, if a trader wants to trade more than 100,000 units (one regular lot), but 200,000 units (two regular lots) is too risky, the trader using the regular account would not be able to trade. However, by using a mini account, a trader could make the trade by trading between 11 and 19 mini lots.

Retail forex brokers often allow a significant amount of leverage when using mini lots. This minimizes risk on their end by lowering trade amounts. Often forex traders will use mini forex trading to gain the extra leverage available, but still trade in units of 100,000 (10 mini lots.) The greater customization of risk and the larger amounts of leverage available make forex mini accounts advantageous for many retail forex traders. (For more, see Forex Minis Shrink Risk Exposure.)

RELATED FAQS

  1. What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity ...
  2. What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing ...
  3. How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading ...
  4. Who are cambrists and how do I become one?

    Discover what a cambrist is, why they are important to exchange markets and what skills you should possess if you are interested ...
RELATED TERMS
  1. Ceded Reinsurance Leverage

    The ratio of ceded insurance balances to policyholders’ surplus. ...
  2. ICE LIBOR

    See LIBOR
  3. WM/Reuters Benchmark Rates

    Spot and forward foreign exchange rates that are used as standard ...
  4. Total Debt-to-Capitalization Ratio

    An indicator that measures the total amount of debt in a company’s ...
  5. Equity Multiplier

    The ratio of a company’s total assets to its stockholder’s equity. ...
  6. Leveraged Buyback

    A repurchase of significant amount of shares through the use ...

You May Also Like

Related Articles
  1. Fundamental Analysis

    Forex Exotic Currency Trading: Risks ...

  2. Active Trading Fundamentals

    Introduction to Margin Accounts

  3. Investing Basics

    Picking Your First Broker

  4. Fundamental Analysis

    6 Dangerous Moves For First-Time Investors

  5. Home & Auto

    Leveraging Leverage For Bigger Profits

Trading Center