In Forex trading there is something called, a Mini account, and it uses a different leverage calculation than a regular account (100k). That is, instead of trading normal-sized currency lots (100,000 units), you will trade in lots that are only 1/10th the size (10,000 units), which in turn greatly reduces your risk. Lots on a Mini account are worth on average $1 instead of the $8 to $10 they are on a regular account. The Mini Forex account offers up to 200:1 leverage, which means that just a $50 margin deposit will allow you to trade lots worth about $10,000, but smaller lots with correspondingly lower pip values mean that you will be taking the less total risk. For example, while a 20 pip loss on a 100,000 USD/JPY position would be $200, the same loss on a 10,000 USD/JPY position on a Mini account would be $20.
Here is an overview of the leverage (Margin, Account Size) on each of the two accounts discussed above:
100K (Normal sized account).
– Minimum required account deposit = $2,000
– Recommended required account deposit = $5,000 to $10,000
– Traded in lots of 100,000 currency units
– Default Margin: fixed at 1% ($1,000 per lot)
– Leverage = 100:1 or 50:1 (if the margin is set at 2%)
– Minimum required account deposit = $300
– Recommended required account deposit = $2,000
– Traded in lots of 10,000 currency units
– Default Margin: set at 0.5% ($50 per mini-lot)
– Leverage = 200:1
There is no downside to trading a mini account, you will continue to enjoy all the benefits that full-size FX account holders enjoy; including, the same state-of-the-art trading software, charts, features, tools, etc. These mini-accounts are ideal for a new FX trader to develop a disciplined and rational trading strategy without focusing excessively on profits and losses.
There is also no maximum trading volume when using a mini-account. Although the standard trading size is 10,000 units, you are not limited to trading one lot. For example, you can trade 10,000 units, 50,000 units, or 200,000 units. This means that as you become more experienced and build confidence, you can slowly increase the size of your positions to maximize profits. In fact, the 10,000-unit trade size allows for more flexibility in terms of customizing the size of your trade. The ability to customize trade size allows you to have better risk management.
With less capital at risk in a Mini FX account, it is easier for you to develop a disciplined trading methodology as well as the confidence to be a successful currency trader, without the anxiety and distractions that come with large swings in Profit and Loss.