There are three different trading accounts that you can get from forex brokers. These accounts are the mini, standard and managed trading accounts. There are some forex brokers that offer a micro account, but this is not often the case. The micro account is seen to be too small for the forex brokers to make a profit. You should consider what you get with each of these trading accounts.
The Mini Trading Account
A mini forex trading account is suitable for beginners in the market as it allows traders to use smaller lots for trading. Most brokers offer mini lots which are equal to $10,000. This is one tenth of the amount required for a standard lot. Many brokers offer mini accounts as an incentive for newcomers to the market who may not feel as confident to trade full lots. They also offer these account as you do not need as much capital to commence trading. There are some brokers who offer micro accounts as well.
The advantage to this type of account is that if you are a beginner in this financial market, you will not be using your entire investment to place trades. You will be able to test new strategies without having to worry about losing huge amounts of money. Another advantage is that you do not need high levels of investment capital to open this type of account. You can open a mini account with approximately $250 to $500 and obtain leverage of 400:1. Your risk is reduced slightly with a mini account. You can use your strategy to trade about five mini lots rather than one standard lot and this reduces the risk involved.
The disadvantage linked to this is the low reward level. Everyone is aware that with high risk levels comes the advantage of high reward, but the opposite of that is also true – low risk brings low rewards. Mini accounts that you trade with $10,000 will only bring you a $1 gain for each positive pip movement. This is compared to a $10 gain in a standard account.
The Forex Brokers Standard Account
The standard account is the most commonly use forex trading account. It allows you access to standard lots which are worth $100,000. This does not mean that you have to invest $100,000 to trade. The leverage that your broker offers you will give you the opportunity to trade this type of account with about $1,000 of initial capital outlay.
The advantages to this type of account is that if you are trading standard lots, your broker will generally offer you better incentives and more services. You have the opportunity to gain more by using this account. If your positions move by about 50 pips in a day, you will gain $500 as each pip is worth $10. This is not possible with other types of accounts, unless you trade with more than a single standard lot.
The disadvantage to traders with this account is that you require a bigger initial capital investment. The amounts you may need will be at least $2,000 and could go up to $5,000 or, at times, $10,000. As you may be able to make high gains with this type of account, it is also possible to make similar losses if the market moves against you. This type of account is suitable for traders with experience.