What Is a Mini Forex Account?
A mini forex account is a type of foreign exchange trading account that allows trading in mini lot positions. As such, it is a popular option among less experienced investors who wish to experiment with smaller trades.
- Mini forex accounts allow trading in mini lot positions.
- They are popular among less experienced investors, who wish to trade smaller position sizes.
- Mini forex accounts can also be useful for experienced investors who wish to achieve greater diversification.
How Mini Forex Accounts Work
Mini lots are one-tenth the size of a standard lot: 10,000 units instead of 100,000 units. Because currencies trade in "pips," which each represent 1% of a single basis point, a currency movement equal to a single pip would result in a $10 change for a standard lot position. However, that same one-pip move would result in only a $1 change if the trader used a mini lot position. Mini forex accounts allow traders to make use of these smaller, less leveraged lots.
Mini forex accounts can also help traders reduce their risk in other ways. For instance, trading in mini lots can permit greater levels of diversification, because the same amount of capital can be invested across a greater number of lots.
Indeed, this can be advantageous even for more experienced traders. For example, a trader may wish to risk more than the value of a 100,000-unit standard lot but feel that two of those lots, which represent 200,000 units, may be too risky. In that case, an in-between trade size could range from as few as 11 or as many as 19 mini lots. This use of mini lots gives the trader a chance to open a position that aligns more precisely with the risk and leverage that seems most appropriate.
Real World Example of a Mini Forex Account
Foreign exchange trading allows traders to utilize high leverage because brokers often require margins of only 1–2% of the trade to open a position. For example, at a 1% margin, a beginner needs only $1,000 to open a $100,000 trade, which may represent one standard currency pair lot. If the trade should move in an unfavorable direction, more margin might be required; so the trader may need to deposit additional funds or be forced to close the trade.
With a mini lot, that same trade could be margined at one-tenth of that size, requiring only $100 in margin to open a $10,000 trade. Or with $1,000 on deposit, with the same 1% margin requirement, ten mini lots could be traded instead of one standard lot.
It's important to note that although brokers may only require a small margin which offers high leverage, traders need not open or maintain such highly leveraged positions. Many traders allocate more funds than the minimum margin for a trade so that they will not be forced to close a position too quickly.