A mini forex account is designed for
those new to online trading and those with limited investment
capital. Those with less than US$5,000 often favour mini accounts
although regular accounts may be opened with a minimum of
$2000-$5,000. The amount varies from broker to broker.
A mini forex account can be opened with a minimum of
US$300-500 and this figure varies between brokers.
A mini forex account is intended to introduce traders
to the excitement of forex trading while minimising risk.
A mini forex account can be opened at anytime but many traders
practice on a demo account first to test their trading strategies
and techniques.
Trading size is normally 1/10th the size of a regular account.
Some brokers have smaller lot sizes. This reduces the risk
associated with forex trading.
Margin requirements differ depending on the broker. The NFA
states the margin should be no less than 1% of the base currency
traded. However not all brokers follow these guidelines. Some
brokers offer margins as low as US$50 per lot on their minis.
Some brokers have software in their Trade Stations that
automatically calculates the required margin while others manually
set the margin and vary it accordingly.
The CFTC is enforcing a 1% margin requirement for
registered FCMs and their affiliates that only offer trading in the
Forex Market.
The new NFA rule requires a minimum 1% margin at all
time to maintain an open trade. (Note this may change from time to
time so although we use 1% as the example at some stage in the
future the margin maybe different. However using similar
calculations one can easily calculate the new margins) Some deal
stations automatically calculate this according to the formula and
hence the margin requirements are continually varying.
Based on a 1% margin requirement
Example 1:
GBP/USD rate: 1.7442/1.7447
Account type: $10 000/lot
1% leverage: 10 000x0.01 (1%) =100units
With the GBP/USD, the margin required is:
1.7447 (GBP/USD) x100 (units of base currency GBP) =
USD174 for each lot.
Example 2:
EUR/USD rate: 1.2326/1.2331
Account type: $10 000/lot
1% leverage: 10 000x0.01 (1%)
=1000units
With the EUR/USD, the margin required is:
1.2331 (EUR/USD) x100 (units of base currency EUR) = US$123 for
each lot.
On a mini forex account where the margin is only US$50 per
lot, a trader with $500 can withstand a larger market swing than a
trader with a regular account with higher margins but if they have
a margin call will lose more capital. A margin call occurs when
the balance of the trading account falls below the required
minimum balance required. The broker then closes all open trades.
Mini forex accounts have become very popular as many stock
investors are taking positions in the forex market to spread their
risk.
It pays to compare mini forex accounts at different brokers to
find the best rates on overnight positions and the most
competitive spreads.
Pip values vary between the different currency pairs. Based on
a US$ 10K account, a 25 pip profit on a mini account Euro trade is
$25 and since this is a small amount, a mini account allows
traders to focus on technical analysis instead of the profit and
exit at the right point rather than take profits early. On a
regular account (100K), 25 pips would give US$250 profit.
<FONT color=#990000>Free Reprint Article | Free Content to Republish | New Discovery Gives You A Mini Forex Trading Advantage
New Discovery Gives You A Mini Forex Trading Advantage
By: Jimmy Cox
Why trade forex? Why spend the time and effort to understand a large and complex market like the Foreign Exchange? Well, mainly for the chance to make large profits, while incurring low costs. The mini forex trading market is a very lucrative market, for a variety of reasons. I`ll go over a few of them in this article.
First, think margin. In the mini forex trading market, a trader`s money can play with 5-times as much value of product as a futures trader`s, or 50 times more than a stock trader`s.
Just like futures and stock speculation, a mini forex trading market trader has the ability to control a large amount of currency by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value if you are trading stocks. The margin requirements for the mini forex trading market are about 1%. For example, the margin required to trade foreign exchange is $1000 for every $100,000.
This can be a very profitable way to trade, but it`s important that you fully understand the risks that are involved. Always make sure that you know how your margin account is going to work. Read the margin agreement between you and your clearing firm carefully. Talk to your account representative if you have any questions.
The positions that you have in your account could be partially or completely liquidated if the available margin in your account falls below a predetermined amount, and you may not get a margin call before your positions are liquidated. Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit risk.
That covers the profits end, but what about the costs? When you trade in futures, you have to pay exchange and brokerage fees. The mini forex trading market is commission free, a much better scenario. Currency trading occurs on a worldwide inter-bank market that lets buyers be matched with sellers in an instant. But even though you do not have to pay a commission charge to a broker to be matched up with a buyer or seller, the spread is usually larger than it is when you are trading futures. And the spread is where the brokerage makes their money.
For example, if you are trading a Japanese Yen/US Dollar pair, a mini forex trading market trade would have about a 3 point spread (worth $30). Trading a JY futures trade would likely have a spread of only 1 point (worth $10), but you would also be charged the broker`s commission on top of that. This price could be as low as $10 for self-directed online trading, or as high as $50 for full-service trading. However, this is generally all inclusive pricing. It`s a good idea to compare both online mini forex trading and your specific futures commission charges to see which commission is the greater one.
Still not convinced? Consider the fact the mini forex trading market is highly liquid, ensuring that a trader will never be trapped in a position, as you can be in an equity or futures market. Or that it trades 24 hours a day, allowing a trader to act on major market events when they happen, rather than waiting for the opening bell. And last, but certainly not least, it is simply to largest market in the world. It is not regulated. No central bank can do more than influence the market. You will never need to worry about government interference.
mini forex trading trading is a great alternative to futures and commodities trading. Unless you are a broker, you will likely want to get some help in mini forex trading. As with any type of trading, there are always some risks involved, but if you take the time to understand the market, and design a trading system that is right for you, you will be successful.
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<FONT color=#990000>Free Reprint Article, Free Content to Republish, Mini Forex Trading - Trading Forex With A Mini Account
Mini Forex Trading - Trading Forex With A Mini Account
By: Sam Beatson
In forex, for the retail investor, things are totally different than the banks and institutions who trade with each other 24 hours per day on a daily basis and in the millions with actual transactions occuring (usually 2-3 days later also known as the Spot Value).
Investment banks will take out a credit check on each other, a bit like when a person applies for a mortgage. Whilst currency trades are placed and completed real-time either by computerised system or telephone, the actual transfer of funds happens a couple of days later.
However, with the retail forex trader, usually, the trade is only placed in the brokers books and no real transfer of funds occurs, although the retail investor is in effect trading with the banks at almost the same quotes and with a very similar spread these days.
So who is the forex broker and what is their relevence in the answer to this forex topic? The retail investor places their trades through the environment of the margin broker. Trades are placed in real time and via a trader who receives the order from the investor, either buy (long), sell (short) or close position.
The broker not only allows retail investors to trade forex live with the banks, but also provides a system of leverage. This means that the broker only requires a deposit to represent the amount of currency a person wants to control, so long as the deposit is enough to cover any losses that might be incurred by the trade.
Take for example a margin leverage of 100:1 given to you by the broker. This means to control $100,000 of real currency (1 lot), you need to provide security to the broker of only $1000. Each 'pip' movement in price will cause your equity to increase or decrease by $10. For example if the currency pair you are trading is GBP/USD (also known as cable) and the price you are quoted is 1.8484, this means 1 UK pound sterling is equal to 1.8484 US dollars.
So, if you are controlling 100,000 units of currency (or you have placed a buy/sell forex trade of '1 lot')in the above case, each time the price changed by 1 pip - ie. 1.8484 changes to 1.8485 - you gain or lose $10 US. This is because 0.0001 x 100,000 = 10 and you have opted to control 100,000 units of currency.
The amazing thing though is that you as a retail trader have only used a security measure of $1000 deposited with the broker in your brokering account and the only cost for placing the trade is a small spread (no comission in many cases) of say 2-3 pips in which the broker makes his profit regardless of whether your trade is successful or not. And the chances of you losing that entire $1000 in the trade are extremely slim, especially if you use risk management and safeguard your capital from losses by setting a "stop loss" - a topic out of the scope of this article.
So what about mini-forex trading. It's a subject which many people seem to want to know about. What is a mini-forex trading account? What is mini forex trading? Mini Forex trading is quite simple to explain given the above information. In light of the information that is told to you above about retail forex trading in general, the use of a mini-account is exactly that!
Rather than trading 1 whole lot each time (ie controlling 100,000 units of currency using only 1000 units of security or deposit to trade for a profit of about $10 per pip depending on the forex currency pair you and trading) you can use a mini-account (sometimes this is entirely indistinguishable from a standard lots account) to trade a fraction of a lot. This could technically be as little as 0.1 lot (ie $1 profit per pip) or half a lot - $5 profit per pip etc.
This is the authors understanding of mini-forex-trading.
In conclusion then, mini forex trading is explained away by understanding what a 'lot' is in forex. Once you understand that forex is traded in 'lots' and what '1 lot' means to the investment banker/forex trader in the bank and to the retail investor using margin leverage provided by a broker, you can understand that mini-forex trading is forex trading on a mini-scale. Instead of trading in lots or multiples of lots (more than one) the retail investor uses a smaller deposit with the broker and trades for less profit, but less risk as well and not needing so much profit to start out with, eg 0.1 lots or 0.5 lots. Some forex brokers these days will allow currency trading with a deposit of as little as $500 into a customers account.
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Why US Interest Rates and the US Dollar Will Continue to Fall
posted on: March 26, 2008 | about stocks: UDN
The dead cat bounce in the US dollar that I was looking for this week did not last long. The combination of weaker US economic data and stronger Eurozone data has taken the Euro to a high of 1.5760. For those of you who had access to my economic data calls, I was looking for German IFO to beat expectations because the flash estimates of manufacturing and service sector PMI in Germany both reported improved business conditions in the month of March.
If business activity was stronger, there was a slim chance that business confidence would be weaker. The market or bank analysts in particular are notoriously wrong about predicting German business confidence. They have a preconceived notion that a strong Euro, slower US growth and high interest rates will make business less optimistic. But if the numbers do not indicate that growth in Germany is slowing, then we shouldn’t assume so.
The Godfather Says Don’t Bother
French President Sarkozy said that France and the UK should join forces to pressure the US into strengthening the dollar. There is zero chance that the US will be bowing to these pressures especially without a similar call from ECB President Trichet.
Trichet At DailyFX, we call Trichet the Godfather because he never wavers on criticism or pressure from politicians and reporters. His word is generally as good as gold. This is why when Trichet said this morning that “there is no need to change the framework due to market turmoil,” Euro traders quickly shrugged off the complaints from Sarkozy.
The US needs a weaker dollar to spur growth, just as much as the Eurozone needs a stronger Euro to curb inflation.
US Data Continues to Weaken
In contrast to the stronger German IFO report and Eurozone Industrial Orders, Durable Goods in the US plummeted. The monthly decline for February was the largest on record. Even new home sales fell to a 13 year low with average prices declining from $250,800 to $244,100. The housing market is trouble which means that the Federal Reserve still has a lot of work to do.
Expect interest rates to fall below 2 percent in the next 3 months.
The basic strategy is to hedge your position going long and short on the same currency pair with about a 20 pips difference in profit target compared to stop loss. We suggested a profit target of 45 pips and a stop loss of 25 pips creating a net profit of 20 pips.
This strategy works well for news report because you are sure to get volatility, but you don’t know which direction. The downside risks are twofold:
1. Slippage - Slippage occurs when you have a stop loss order in place and the market is so fast that the price moves through your stop and executes you at a worse price than you were expecting. On most brokerage platforms (especially retail), you will get slippage when a news report comes out. Our strategy avoids slippage on the entry trade by placing our orders before the news report comes out. The market is not yet moving fast.
However, slippage on the exit trade is where the problem lies. A typical example would be if you went long on the EUR/USD at 1.3400 with a profit target of 1.3445 and it hit that profit target taking you out with a 45 pip profit. You also went short on the EUR/USD at 1.3400 with a stop loss of 1.3375 (25 pips), but in a fast market, it actually gets you out at 1.3367. That’s 8 pips of slippage and just caused your net profit to go from 20 pips (45-25) to 12 pips (45-33). In extreme market conditions, you may get executed away from your stop loss even further and actually come away with a net loss in the position.
There is no way to 100% avoid this situation, however, we suggest finding a non-retail broker with tight spreads. A non-retail broker will not have any incentive to manipulate pricing (not that this is always the reason for slippage) because they work with no trading desk. This means they simply pass through all of your orders to the true inter-bank market and get compensated by the banks for volume. This puts these firms on the same side of the table as you as they are only interested in you continuing to trade volume with them.
On the other hand, firms that are retail-based with a trading desk are actually taking the other side of your trade (when you go long, they are short and vice versa) so their business model is one in which they have a vested interest in seeing you lose. So, when they have an opportunity to take advantage of price, they will. You never want your money in play with a brokerage firm that puts their own interest ahead of yours. That is both common sense and not something the “Smart” money does.
An additional advantage to most non-retail firms is that they work on true inter-bank spreads, which are much tighter than the spreads you will find at retail firms. This creates more profit potential for you. For example, a typical spread on the EUR/USD at a non-retail firm is 2 pips, where it’s normally 3 at most retail firms. The GBP/USD and USD/CHF pairs can be as low as 3 pips on a non-retail platform while most retail firms are still at 5 pips wide on these pairs.
2. Whipsaws - Whipsaws are the enemy of this strategy. A whipsaw occurs when the news creates an initial sharp, “knee jerk” reaction in the market (either up or down) and then immediately turns the other way. Where this kills the strategy is when it makes it far enough to stop you out on one side of the trade but doesn’t go far enough to hit the profit target on the other side before it turns the other direction. The result would cause your trade to be stopped out on both positions and a net loss of 50 pips.
Here is an example:
You enter the following orders before the news report is released:
Long EUR/USD at 1.3400 (profit target of 1.3445 and stop loss at 1.3375)
Short EUR/USD at 1.3400 (profit target of 1.3355 and stop loss at 1.3425)
When the news report is released, the market spikes up to 1.3430 and heads back down sharply to 1.3350).
Your stop loss is hit on the short trade during the initial move up to 1.3430 at 1.3425 for a loss of 25 pips, but the long trade is still 15 pips away from hitting the profit target when it suddenly goes back down at 1.3430 and even worse stops out on the way down to 1.3350 at 1.3375 for a double loss. This creates a net loss of 50 pips.
Risk Disclosure
Unique experiences and past performances do not guarantee future results! Testimonials herein are unsolicited and are non-representative of all clients; certain accounts may have worse performance than that indicated. Trading stocks, futures, options and spot currencies involves substantial risk and there is always the potential for loss. Your trading results may vary. Because the risk factor is high in the foreign exchange market trading, only genuine funds should be used in such trading. If you do not have the extra capital that you can afford to lose, you should not trade in the foreign exchange market. No trading system has ever been devised, and no one can guarantee profits or freedom from loss.
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Mini FOREX trading
Open an online FOREX trading account first before considering of betting big if you’re a beginner. FOREX trading is risky if you don’t have enough experience. If your intention is to get some experience and not interested in making big investment yet, you can start by investing $50 - $100 first and see how it goes. Starting to trade with such small amounts is the best way to get familiar with FOREX marketplace. It is much better than operating ‘DEMO’ accounts, where you’re not really risking your money and there are no return at all using ‘DEMO’ accounts.
You can start an online FOREX trading account and some website let you start from as little as $50. Do not laugh – mini accounts are a good ways to get your feet wet without taking a bath. Also, mini FOREX trading does not suffer the illiquidity of many futures mini-contracts, as everyone feeds from the same currency “pool”. Not only that, you can start trading in less than 5 minutes. You can immediately register, deposit the margins of the deal and start running.
Mini accounts are a great way to get started and test your basic trading expertise. Trading with small amounts is much more telling than paper trading. Remember to choose a FOREX trading platform with competitive spreads. This way will save your FOREX trading costs. It can be as low as 5 pips, depending on how much money you want to trade.
I would want to give a few tips before you start an online FOREX trading account. By nature everyone is emotionally attached to their money. Since you’re trading with funds, you must cultivate an attitude of emotional detachment from your FOREX trading account. Otherwise, each sour trade will infest you with stress, worry and fear. Just be calm when you trade and you can do much better.
About Author
Easy forex is an online trading platform gives lots of free valuable tools. You can start trading instantly at a very low cost. However trading forex involves risks, easy forex will not be responsible for the losses incurred by forex traders.
