Most common perception of currency trading – it is only suitable for very rich investors. This is wrong because the beauty of trading today is that all kind of traders can join in. Forex trading doesn’t have to be scary! When you aren’t ready to invest large sums into your trading account, you can take advantage of mini/micro accounts, where you can gain the needed experience in order to move on and trade larger sums of money.
What is a Forex Trading Account?
A forex account is a trading account that you will hold and that will work similarly to your bank account, but with the difference that it is primarily issued with the purpose of trading on currencies.
What is the difference between a micro account and a standard account?
The difference between a micro account and a standard account is the contract size traded. With a micro account, the contract size is 1000 units of currency whereas, with a standard, the contract size is 100,000 units of currency. In addition, most micro accounts do not have a minimum deposit whereas standard accounts generally require a minimum deposit of a few thousand dollars.
Forex accounts for example at XM Forex Broker can be opened in Micro, Standard or XM Zero formats. Other brokers, such as Octafx and Liteforex work with Classic, Standard and Advanced account types.
Micro accounts are the best solution for beginners, whether it is a high school math teacher, excitement-seeking BA graduate or stay-at-home mother who is seeking a way to stay home with her kids and still work. Hundred dollars will be enough to buy or sell currency pairs without risking it all.
While your trading knowledge is still limited, you can hardly expect to trade on the same level as the experienced trader. Micro accounts are therefore a great way to start forex trading with confidence.
Forex micro account is similar to the regular account, except that it requires smaller funding. In other words, with micro account you are trading cents instead of dollars. You can open an account with as little as $1 or $10.
Micro accounts can be considered as a transition phase. Once a new trader gets tired of practicing with demo account, he can switch to micro and continue to learn trading without considerable losses.
One micro-lot is a hundredth of a standard lot, or 1,000 units of a currency. Despite its reputation, a micro-Forex account can be very useful even if you have enough trading capital for a standard account. It is much easier to implement conservative position sizing techniques with micro-lots. Some trading strategies require simultaneous creation of tens of market positions; in this case micro-lots will surely help to size and scale the positions adequately.
Additionally, an option to open a micro account with a Forex broker can turn out to be useful if you want to test its execution, live accounts support and deposit/withdrawal speed without risking too much cash.
An example of Micro account can be viewed below:
- Base Currency Options USD, EUR, GBP, JPY, CHF, AUD, HUF, PLN, RUB, SGD, ZAR
- Contract Size 1 Lot = 1,000
- Leverage 1:1 to 1:888 ($5 – $20,000), 1:1 to 1:200 ($20,001 – $100,000), 1:1 to 1:100 ($100,001 +)
- Negative balance protection
- Spread on all majors As Low as 1 Pip
- Maximum open/pending orders per client 200 Positions
- Minimum trade volume 0.01 Lots (MT4), 0.1 Lots (MT5)
- Lot restriction per ticket 100 Lots
- Hedging allowed
- Islamic Account available
Micro account vs demo account for testing?
In forex trading, demo accounts allow traders to trade the market with virtual money. Demo accounts give traders experience without them having to risk any money. However, because demo account users are trading with virtual money, they will not be able to actually experience how it feels to actually lose or profit a trade with real money. In effect, it negates the psychological aspect of trading. With a micro account, a beginner trader can feel how it is to trade in real life with real money, with real risks, while still only risking only a small portion of their capital.
The demand for micro accounts when trading forex is particularly high with new traders. Mini and micro accounts have remained an essential part of the forex trading business, and that is why a majority of brokers provide them.
Trading forex with a micro account makes it possible for traders to start trading with a smaller amount of capital. Traders also sometimes use micro accounts to try out new brokers with a live account whilst reducing the risks.
With micro accounts, traders can open trades with contract sizes starting from 1,000 lots rather than the larger 100,000 standard lot. This allows traders to refine their trading strategy with smaller deposits before moving to larger account sizes.
It used to be the case that with smaller micro accounts the leverage offered by brokers is often larger, but this has since been changed with ESMA limiting the amount of leverage offered to traders to a maximum of 1:30 on major forex pairs for less experienced traders.
Another purpose of micro accounts is to give experienced traders a place to test their strategies. While trading forex, many times you have to adapt to certain changes and come up with new strategies. Applying new trading maneuvers on your standard account might not be such a good idea due to risks involved and that’s where micro account comes in handy.
You might argue that demo accounts can be used to test new strategies, but not all demo account offer the real-time trading environment. After all, it is a simulation. Micro account, on the other hand, not only minimizes the risks, but gives you a great opportunity to test your new strategy inside out before switching back to the regular account.
Because forex trading requires not only great skills but also discipline and emotion control, micro accounts have great advantage over demo accounts. While practicing your new ideas, the real money is traded, no matter how small. This gives you a chance to feel the certain degree of pain when a trade doesn’t go as planned. Losing $100 is not the same as losing $1,000; however it is much more painful than losing the virtual money, right?!
Another purpose of micro account is to take time off. There are times when a trader needs to cool off, regroup, rethink, and step back. Instead of getting yourself into overtrading loop in search of a chance to make that $500 you just lost back, it is more efficient to lower the amount being traded and slowly rebuild your self-esteem.
Micro account may limit the income, but it sure protects you from destructive losses, especially during very volatile periods, like during and shortly after important economic data releases. While minimizing the risks, micro account still gives you a sense of reality and a touch of profits!