If you are a beginner in the world of forex trading, you would have to learn the basics first. This includes knowing the risks involved, reading chart patterns, deciphering relevant news and how you should trade in currencies. You would need to choose a broker and this involves choosing a specific trading account. The account type that you choose will depend on a range of factors such as the amount you have for investment, whether you will be trading on a full or part-time basis and your tolerance risk.
Mini Trading Account
Tip: To succeed in Foreign exchange trading, you should try and eliminate emotional criteria from your trading strategies. Emotions are by definition irrational; making decisions based on them will almost always lose you money.
A mini account allows you to make trades with smaller lots. Most mini lots are equal to $10,000 whereas a standard account is normally 10 times the size. Most brokers offer both standard and mini accounts. The mini account is an added attraction to their brokerage for beginners in the market and those who are not willing to trade in full lots due to the costs involved.
Tip: Set up at least two different accounts in your name to trade under. One will be your real one and the other will be a demo account to use as a bit of a test for your market strategies.
Advantages of a Mini Account
ï The low risk attached to this type of account is its main advantage. By limiting trades it is possible for new traders to commence trading without using all their funding. This gives them the opportunity to test various strategies without the worry of losing all their money.
ï The low initial investment is an attraction as you only require about $500 to open an account and some of the brokerages offer leverage of up to 400 to 1.
ï Efficient risk management is imperative in this financial market and this is simple to do with this type of account. If you consider one standard size lot to be too risky for your taste, it is possible for you to buy a few mini lots, thus reducing your risk considerably.
Tip: Do not change the place in which you put stop loss points, you will lose more in the long run. Stay with your plan.
Disadvantages of a Mini Account
ï The rewards are lower than in a standard account. If you trade $10,000 your gain for every pip is $1 compared to $10 if you were using a standard account. However, the risks are lower.
Standard Trading Account
Tip: To maintain your profitability, pay close attention your margin. Using margin correctly can have a significant impact on your profits.
This is the most common of the accounts available. You will have access to lots that are worth $100,000 each. This does not mean that you are required to invest that amount of money as the rules related to leverage and margin gives you the option to trade with an amount as low as $1,000.
Tip: To limit any potential risks with the forex market, use an equity stop order tool. This placement will stop trading when an acquisition has decreased by a fixed percentage of the beginning total.
Advantages of a Standard Account
ï Most brokers offer better services and more perks for traders with these accounts, mainly because of the higher initial investment.
ï The gains are higher as each pip is worth $10. It is not possible to get these big gains with other account types, unless you trade more than a single standard lot.
Tip: Don’t plan on inventing your own new, novel way to make huge forex profits and consistently winning trades. The world of forex is one that is quite complicated and has prompted voluminous discussion and study for a very long time.
Disadvantages of a Standard Account
ï The initial balance is generally much higher, being at least $2,000. This may be higher in some brokerages.
ï The potential for greater losses is much higher. The same way as your gains will be higher, so will your losses.
The different types of trading accounts also include a micro account, which is smaller than a mini. Not all foreign exchange brokers offer this type of account.