Forex Mini Accounts – New Traders Start Here!
May 19th, 2009
If you are new to forex trading or have only a small amount of capital available right now, mini forex trading could be the way to go for you. It allows you to trade with real money while limiting your risk to a relatively small amount. Generally the lot size of trades for a mini account is only one tenth of the lot size for a standard account with the same broker.
Mini Forex Trading Or Demo?
Somebody starting out in forex has several options:
1. Start out right away with live trading in a standard brokerage account, investing from $1,000 to $5,000. This would be very risky for a beginner and is not recommended.
2. Begin with live trading in a mini forex account. Generally you need $250 for these accounts but you may be able to find brokers who will let you start with even less.
3. Start out with a demo Forex day trading account where you are picking up trading skills without investing any real money at all, then when you are consistently making profits, switch over to either a mini account or full brokerage account depending on your capital and your strategy.
Advantages Of A Mini Forex Trading Account
Most people choose option 3, the demo account. They feel much safer using ‘toy money’ online for several days, weeks or months. A demo account also gives you the opportunity to try out the various different strategies that you are probably reading about.
However there can be problems with running a demo account for too long. Some forex traders and trainers say that it lulls you into a false sense of security. It is much easier to take risks when there is no real cash involved, and you will be practicing with strategies that you may be uncomfortable using in real life trading.
So what can happen is that the demo account teaches you to make profits using medium to high risk strategies, but when you are faced with a real money situation you may lose your nerve. This usually results in poor decisions made on the spur of the moment and 'strategy hopping' where you are constantly switching from one plan to another. Losses are almost inevitable in this situation.
For this reason, some experts recommend starting with a mini account and using real money almost from the get-go. You would only use a demo account for a small number of trades to familiarize yourself with the technical side of operating your account and making trades. In this way you are likely to learn strategies that can work for you in the long term.
Disadvantages Of A Mini Trading Account
When you are trading small amounts, you must expect to pay more in percentage terms to the broker. This eats into your gains. In the long term this can have a massive effect on your results and can make the all-important difference between profit and loss. Therefore, most people operating a mini account will be aiming to switch to higher value trades as soon as they have the capital to do so.
However you choose to start, you will need to accept that forex trading is high risk by its very nature, like all forms of investment that offer the possibility of large gains in a short time. You should only invest money that you are prepared to lose if things go against you.
Starting out with a mini Forex account can be a great way for someone who is new to forex to pick up the techniques for real. Mini forex trading could be the best way to find out for sure whether foreign exchange trading is right for you.
A87855345