By: Charley Warady
The most experienced Forex trader might have at his disposal a Forex mini account. The fact of the matter is, the Forex mini account is not just for the novice Forex trader. All levels of traders may use this method for various reasons. To many, it's like having a second car. Something you like to drive around for fun. For others, it's a way to get your feet wet without drowning hopelessly in the deep end. Probably an unnecessarily scary metaphor, but true nonetheless.
What it is...
A Forex mini account is what it sounds like. It is less than a standard account. You do everything less except trade less. You can trade the same amount, if not even more, depending on your margin requirements and your success rate.
Generally speaking, a Forex mini account requires a small deposit of between $100 and $500. The minimum depends upon the Forex broker you choose to use. There are a handful of brokers who let you begin with as little as $50, but don't bother. If all you're going to do is deposit $50, start a poker game at your kitchen table. Your odds of making money are better there.
Because it is a smaller account your trading size is also smaller. You are allowed to trade as little as a 0.1 lot. The trading price is the same, the Forex market is the same, but the quantities are smaller.
How much to put in
Although the minimum required by a Forex broker might be as little as $100, it is recommended that any novice Forex trader begin the Forex mini account with as close to $500 as he can. The biggest danger in trading Forex is trading scared. If every trade is dependent upon profit for mere existence, you're going to try too hard. And when you try too hard, you're bound to fail. Ask any baseball player in a batting slump. Well, you might want to wait until after he's out of the slump. They're generally in bad moods during the actual slump.
By starting out with a proper cushion, even though it doesn't seem like a lot of money, it makes the difference between willing to try a new strategy and holding on to something that doesn't work. If you maintain your discipline, the amount of money in the account will grow. Don't get crazy just because it's 'only' $500.
How much to trade
Just because the trading size of a Forex mini account allows you to trade in small quantities, it doesn't mean the trade is worth any less. If the Forex trader, whether he be an experienced pro or a novice, loses his discipline and throws away his strategy, it will soon catch up to him. If you treat your mini lot the same way you would a regular quantity, your odds of success are greatly increased.
An experienced Forex trader might decide to open a Forex mini account to test out a new strategy or system. In order for that to work, he has to trade as if it's his regular Forex trading account. Otherwise the result of the test is going to be skewed and inaccurate. And if you're going to do that, you may as well go back to the kitchen table for that poker game.