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.)

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