What is a Forex Mini Account and How Does it Work?
A forex mini account has a lower minimum capitalization requirement with your forex broker and it has less leverage. What does this mean? It means that you can get started with less money and less risk exposure. Here’s an example of how a mini forex account could launch your forex trading business: Imagine you placed a trade using a standard account and you made a loss of 20 pips (pips are a measure of price movement). Because your standard account is leveraged, your loss would be compounded to $200. However if you’d placed the same trade using a mini forex account, the same loss would only have come to $20.
That difference is significant for the new trader. It allows the new trader to trade with less emotion caused by the fear of loss when the price moves against you (the price moves against all traders at some point).
While all businesses contain an element of risk, you should remember not to take huge risks with your trading account. It’s important to trade basing your decisions on calculated risks and consider each trade independently depending on the market conditions at the time.
So even though a forex mini account requires less capital to open and operate, this doesn’t mean you should take outrageous risks with your trading efforts. The object is to use this smaller account to hone your trading skills and learn more about the market at the same time as gaining confidence as a forex trader. These vital components mean you’re preparing yourself to deal with trading within the more advanced standard accounts when you’re ready to move upwards.
The biggest benefit to using a forex mini account to begin your forex trading business is learning how leverage can affect each trade, both positively and negatively. With a standard account, the massive loan to value ratio used in leveraging can compound your profits very quickly, but can also multiply your losses drastically. By using a mini forex account you have the option of reducing the amount of leverage you use and controlling the amount you trade much more easily.