Why Trading forex in a Mini account is Safer
Forex traders trade in accounts held by brokers. There are different account types available but we recommend a beginner trader to start with a Mini account. In this article we explain the difference between them and why it is safer to start with a mini account.
The difference between a 'Standard Lot' traded in a standard account and a 'Mini-Lot' traded in a mini account.
Standard Lot is the equivalent to 100,000 units of the quote currency in a forex trade.
A standard lot is the trade size. When you are trading in a standard account and select 1.00 as your trading volume, you are trading a full lot size and your pip is then worth $10. You determine the value of your pip by the volume size you choose, so you are able to make your pip value less for example on a trade volume of 0.1 your pip is now $1 but the least amount is 0.01 which is equal to $0.10.
Mini Lot is 1/10 the size of the standard lot of 100,000 units. One pip of a currency pair based in U.S. dollars is equal to $1 when trading 1 mini-lot. Just like the standard account you can change your trading volume to 0.1 and then your pip value is $0.10 and 0.01 with a pip value of $0.01.
Because we calculate our risk based on the stop-loss sizes determined by Technical Analysis of our charts we have seen that most stops on 4 hour charts are between 40 to 100 pips and it is known that even when the odds are in your favour 5 wrong trades after each other is not uncommon. This is why your choice of Leverage and account type is so crucial. Protecting ourselves against risk is our number one priority, we can’t compromise on our stop levels as the market is known to test these levels repeatedly but we can be prepared should the market come to these levels and take our orders out. If you know exactly how much money you are going to lose should your stop loss be activated it will not have such an adverse effect on your mind as a trader.
For example, if you have an account of $500 and a regular risk of between 40 to 100 pips you need to adjust your trading volumes to adequately determine your pip value as to not wipe out your account in 5 wrong trades. If you choose the least trading volume of 0.01 on a standard account your pip is worth $0.10 making your risk $4 to $10 every time you trade. On a mini account a trading volume of 0.01 your pip value is $0.01 making your risk $0.40 to $1. To some this might seem like wasting time trading with peanuts but the rationale is that on a mini account you are more in control of your risk than with a standard account especially when your account size is less than $5000. This gives you the opportunity to build your account with steady consistency, giving you more confidence as a forex trader. In time you will increase your trading volumes as you feel comfortable increasing your earning potential but still managing your risk closely. This is successful trading.