To venture into forex trading, you need a good amount of capital and a proper trading strategy. However, in the beginning, you might want to consider brokers that offer small trading because you’re inexperienced and don’t want to lose money.
This is where a mini trading account comes in handy because it enables you to trade the forex mini lot. A forex mini account is a forex trading account that allows you to exchange currencies in smaller sizes, also known as the forex mini lot.
Forex mini accounts mitigate risk because you’re investing a small amount. As a result, mini accounts cannot be used for large-scale investments because you will not get as many benefits compared to standard trading accounts.
When starting off, a forex mini account is ideal because it will enable you to understand forex and the trading basics. Let’s look at forex mini accounts in more detail, understand how to compute profits and losses in these accounts, and the benefits of these accounts.
Understanding Forex Mini Accounts
A forex mini account appeals to novice traders because it offers smaller contracts and limits the number of potential losses you may suffer as you acquire the necessary trading experience.
The holders of forex mini accounts have access to the same trading tools and markets as standard trading account holders, including trading platforms, charts, and client support.
Regular forex accounts need order lots of 100,000 base units; mini accounts, on the other hand, need 10,000 base units. You can also get micro accounts that have order lots of 1,000 units. This means that regular account holders must place trades in multiples of 100,000 while mini account holders place orders in multiples of 10,000.
The smaller unit size enables traders to handle their risk better. Also, it allows more experienced traders to take more diversified risks by distributing the same amount of cash over a wide range of currency pairs.
How Are Profits and Losses Computed in Forex Mini Accounts?
If you have a standard trade account, you need to have 100,000 base units and, as a result, a considerable amount of cash to make an unleveraged purchase.
For instance, an exchange for the EUR/USD 1.2500 currency pair moved up to 1.2750 when the contract ended. This will generate a pip of .0250 (1.2750 – 1.2500 = .0250).
- Regular account earnings: 100,000 x .0250 = $2,500
- Mini account earnings: 10,000 x .0250 = $250
Let’s say the Euro exchange moved down to 1.2000, giving a pip of 0.0500
- Regular account loss: 100,000 x .0500 = $5,000
- Mini account loss: 10,000 x .0500 = $500
What Are the Advantages of Forex Mini Accounts?
Low Startup Capital
To open a mini account, you only need a small amount of startup capital; usually, the deposit is between $100 and $500. The minimum deposit will depend on the forex broker you pick. A mini account is ideal for persons who want to learn forex without risking too much cash.
When you have a forex mini account, you’re not limited to exchanging one lot at a time. Ten mini lots are equivalent to one standard lot. Therefore, by using mini lots rather than standard lots, you can customize the trade and have more control over the risk.
For instance, if you want to trade more than one standard lot (100,000 units), but you don’t want to risk trading two regular lots (200,000 units). In that case, a forex mini account will give you more control over position sizing.
Another benefit of forex mini accounts is that it gives you more leverage because you’re using mini lots. This mitigates risk on your end because you are trading using smaller amounts compared to standard trading accounts.
Often, forex traders use mini accounts to gain extra leverage but still trade in units of 10 mini lots (100,000 units). The more significant amounts of leverage and low risk make mini accounts the best forex accounts for beginners.
To sum it all up, if you want to venture into forex trading seriously, a forex mini account will enable you to minimize losses before you familiarize yourself with the trading practice. In addition, these accounts are also used by expert traders to test new strategies.