Tuesday, September 25, 2007

Mini Accounts: A Great Way to Get Your Start in Currency Trading

Currency trading is a risky but potentially profitable means of earning more money in addition to your regular income. There are many ways of going about it, but if you are a beginner to currency trading, I strongly suggest starting with what is called a mini Forex account. You can open a mini account with a minimum investment as small as $250, and some brokers will even allow you to open an account with a $100 minimum investment. With a mini account, you will still enjoy many of the same privileges as a regular account holder.

Let's look at the difference between a mini account and a standard Forex account. In a standard account, the lot or trading contract size amounts to 10,000 units of the base currency--in the case of USD, that would amount to $10,000. A mini Forex account will handle only a percentage of a single lot, which means that mini account contract is one-tenth the size of a standard Forex account contract. The pip values in mini Forex trading are also one-tenth the normal value.

Mini account trading does involve engaging in marginal trading. That means that you are making use of leverage, or in other words, borrowing money to be able to perform a trade without having to invest the full amount required for a single lot. The investment that you pay for out of your own pocket is called a marginal lot. For a mini account, the marginal lot for every $10,000 lot is $50, which is a 200 to 1 leverage. On starting a mini account with a minimum of $250, you are trading five mini lots with your investment.

Should you be concerned that the mini account requires a high degree of leverage as compared to other forms of trading? For example, stock market day trading has a leverage ratio of 4 to 1 in a trading day, which is far lower than the leverage ratio of mini account trading is 200 to 1. But this is the standard practice in mini Forex trading and traders and brokers do not see it as over-leveraging.

When you look at what happens in mini Forex trading, you will find that the traders risk on a mini account can be compensated by the smaller amounts of potential losses in mini trading. An average loss in mini account trading is one-tenth the amount that would be lost in an equivalent trade on a standard Forex account. That makes it easier for mini Forex traders to follow a disciplined trading strategy, since a trader normally finds it simpler to let go of a small loss, whereas a greater loss may prompt an investor to hold on longer than one should to a declining currency. The high leverage in mini Forex trading also gives an investor more options and trading strategies in currency trading.

A mini Forex account is the recommended investment choice for traders who want to invest $10,000 or less in currency trading.

Learn more about getting into Forex trading. View our latest articles about the Forex market at http://www.faso06.com