What is a Forex mini account and how to use it?
A Forex mini account is a standard type of trading account that gives the trader a chance to trade with a limited amount of money while maintaining all features provided by other types of accounts.
The benefits from using this kind of trading account include:
- An opportunity to start practising in the market without having much influence on your finances, due to the smaller size of funds needed for trading;
- High leverage ratios, starting from 1:3 up to 1:500;
- No commissions will be charged on trades throughout the world.
Who uses a Forex Mini Account
Forex mini accounts plans are basically for small investors.
These Forex brokers offer these plans with various features at reduced costs because the trader will be trading only in micro-lots which is 1/10th of a full lot size, hence ten times smaller than the standard lot used by most brokers.
One may think that it is a disadvantage or not worth using them since there is much less volume/liquidity to trade with, but I would like to show you that they have advantages you should consider before considering if they aren’t worth trying out.
Books, eCourses and webinars will help you improve your trading skills which are crucial during the first steps of your journey as a trader.
But for traders who want to keep their funds safe, it is worth considering that the FCA or any other regulator does not cover these. There aren’t protocols in place for compensations if something goes wrong with your account, which means that putting down money could result in losing it all.
This is why it’s recommended only to use the money you can afford to lose if this is your first attempt at Forex trading.
The forex mini account plans present some unique features which may decide whether a trader wants to use them or not: here follows a list of pros and cons of getting a Forex mini account.
Advantages
The advantages of a micro forex account for small investors are that they can trade them in just one click from any device from anywhere in the world. It gives you the power to trade at any time and has more flexibility with your money. You can add or withdraw funds every day, while brokers usually require a minimum deposit before allowing it, making them a lot more accessible to new traders.
This is why it is popular among many beginner traders who want to get their feet wet without mortgaging their homes.
Disadvantages
On the other hand, there are some disadvantages to this type of account if you want to get involved in serious trading. The low margin requirement means you will end up liquidating your position frequently because you can only trade micro-lots which is not enough for most traders.
This is why it’s better suited for small budget traders who won’t need more than 100k of margin to open one position.
One issue that beginners are not familiar with is that since you are trading smaller lots, your stop losses will also be narrower.
Therefore it’s essential to choose carefully how much margin you will allocate for each trade to avoid getting stopped out of positions which you could have small gains or break even on instead of having larger ones.
Forex micro account plans have the same cost structure as other forex mini accounts, including spreads. The spread varies depending on the currency pair and time frame but may go from 1 pip up to 5 pips depending on the market conditions.
The high leverage offered makes slippage very high, so it can often occur when placing an order, resulting in a big move against us.
The risk of this happening is higher than with other accounts, so it’s essential to use them as a learning tool and for small trades.
In Conclusion
Here we have seen the significant advantages and disadvantages of using a forex mini account kind of plan. Suppose you want to become a professional trader. In that case, I recommend that you start trading with the standard account first and only then move on to try one out since they can be dangerous and unpredictable without having enough experience under your belt.
But if you love challenges and want to open an account right now, make sure you test everything in demo trading before doing it live. Don’t forget there aren’t any stop-loss or margin calls like the standard ones, so you must know how your money will behave inside such an account.