Forex Trading Strategies

Mini Forex Account

A mini forex (minifx) account is designed for those new to online trading and those with limited investment capital. Those with less than US$5,000 often favor minifx accounts although regular accounts may be opened with a minimum of $2000-$5000. 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 from broker to broker.

A mini forex account aims to introduce traders to forex trading while minimizing risk.

A minifx 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 per 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 per 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 because 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.

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