Forex Mini Or Micro Account: Which Is Best?
Forex mini or micro accounts are the the most popular choice for new forex traders, but what is the difference between them and which is best for your situation? In this article we will look at how much money you need to invest in each type of account in order to get the best from them.
So what are the different types of forex trading account? First let’s take the standard account, which has the highest minimum investment. Most brokers ask for at least $10,000 and with some you need $50,000 to open an account. The standard lot size is 100,000 currency units. So with leverage of 100 times you would be putting up 1,000 currency units per lot.
It’s a lot of money (excuse the pun) and it comes as a relief to most traders to know that they can have a mini account with one tenth the position size, ie requiring 100 currency units to control a lot size of 10,000 units. The forex micro account is one tenth of the size of the mini, with a lot size of 1,000 units that you could control with just 10 currency units assuming 100 times leverage.
So why is the standard lot size so big? Years ago, before the rise of the internet, forex trading was done through dealing desks. Most trading was in the hands of the large financial institutions such as banks. It was possible for private individuals to get involved, but they had to phone a broker to give their instructions. The time cost of this meant that brokers would only consider taking on clients with a substantial amount to invest.
However, when brokers began transferring their services onto the internet, the costs were slashed almost at once. It was no longer necessary to have a staff of dealers answering a bank of telephones. Traders could control their own accounts from their own homes or offices, by logging on to the brokers’ website.
This means that it is now cost effective for brokers to offer much lower lot sizes and therefore much less of a minimum investment. Brokers leapt at this opportunity to attract a huge number of new clients, and the forex mini account was born, soon to be followed by the micro.
The minimum investment varies with the broker. Scaling down from the standard lot size you might expect the minimum for a mini forex account to be $1,000 to $5,000. In fact, many brokers will let you start with less, but it is better to have that kind of sum if you plan to trade mini lots. If you have less than $1,000 to invest in your trading, it would probably be better to start with a micro account.
There is something else to consider too. Taking the example that we gave earlier with 100 times leverage and assuming that the currency unit in question is the US dollar, if you open a forex mini account you will be dealing in lots of $10,000, requiring you to put up $100 for each trade. To many people that can seem like a lot of money. Remember, forex trading is very risky and your trades will not always be profitable. Some losses are inevitable. Are you comfortable with committing $100 to every trade?
If not, then a micro account might suit you better, at least at first, even if you have more than the minimum required to open a forex mini account.