A forex mini account is a popular choice for those who are just learning how to trade. This is because of the smaller lot size, which allows new forex traders to learn and experiment while minimizing their risk.
With forex mini accounts, the mini lot size is one-tenth that of a standard lot of 100,000 units—or 10,000 units. Therefore, one pip of a currency pair based in U.S. dollars is equal to $1, compared to $10 for a standard lot. Below, we discuss in further detail the advantages of using mini forex accounts to trade.
- With a forex mini account, mini lot sizes are 10,000 units as opposed to 100,000 units with a standard lot.
- This means a one pip move in a currency pair based in USD is equal to $1, compared with $10 for a standard lot.
- The smaller lot size allows new forex traders to learn and experiment while minimizing their risk.
- Smaller lot sizes also give traders greater control over position sizing.
Advantages of a Forex Mini Account
Forex mini accounts require a small amount of upfront capital to get started, typically an initial deposit of between $100 and $500. The minimum depends upon the forex broker you choose. This is ideal for those looking to learn about forex trading but don't want to risk too much money.
Although traders can start small, it's important to realize that the risk isn't small, especially when trading with leverage. One small adverse move in the currency pair you're trading can quickly blow your account. This problem can be reduced by starting with more than the account minimum to make the amount of leverage more manageable.
Traders with a forex mini account are not limited to trading one lot at a time. To make an equivalent trade to that of a standard lot, one can trade 10 mini lots. By using mini lots instead of standard lots, a trader can customize the trade and have greater control of risk.
Suppose a trader wants to trade more than 100,000 units (one regular lot), but doesn't want to risk trading 200,000 units (or two regular lots). A forex mini account gives the trader greater control over position sizing. They could fine tune their risk by trading between 11 and 19 mini lots.
Another reason why some traders opt for forex mini accounts is that retail forex brokers often allow for significantly more leverage when mini lots are used. 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 will 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.
The Bottom Line
Forex mini accounts are useful for experimentation. An experienced forex trader might use one to test out a new strategy or system. For that to work, the trader must treat the account as their regular forex trading account, otherwise, the results will be inaccurate and skewed.
In summary, if you are are looking to get your feet wet in forex trading, a forex mini account will help you to minimize losses while you come up to speed. Similarly, even the experts use mini forex accounts because they provide a way to test new strategies while keeping exposure to risk to a minimum.