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Standard or Mini Account?

Sean Hyman (April 9, 2009)

Issue #58: Thursday, April 9, 2009

Now That is the Question

By Sean Hyman When you set up a Forex account to trade foreign currencies, there are several things you need to decide.

You need to decide how much money to put in your account, whether you want to place trades yourself online, or call into your FX dealer for each trade. But there is one decision you have to make that could literally make or break your account: And that’s what size of account you want it to trade in.

You have two choices: A mini account or a standard account. A mini account trades in smaller increments (10 times smaller lot sizes than a standard account), known as “mini-lots,” while a standard account trades “standard lots” of 100,000 units of currency.

So instead of trading 100,000 units of currency on each trade, you trade 10,000 units with mini-lots. In other words, you’re risking less on each individual Forex trade with a mini-lot account, but you will also earn less on any potential winning trade.

Open the Wrong Account and You’re Dead in the Water…
Before You Place a Single Trade

Remember: In the Forex market, you define your leverage by the type of “lots” you trade, so the type of account you trade determines whether you’re buying standard lots so the type of account you choose is very important.

I see so many novice traders try to open trading accounts with lot sizes that are way too large for their balance. And if they err to one side, they usually err to the aggressive side.

Chances are your broker won’t tell you which account you should open. Most industry market makers will allow you to open up any type of account, whether it will benefit you or not.

However, here are some general guidelines that I’ve found will help you to open up your first trading account. In my opinion, you should only open a “standard account” if you plant to fund it with around US$50,000. If you’re using your standard account, you should only trade one standard lot for every US$50,000. (As I said above, one standard lot controls 100,000 units of currency).

In my opinion, traders should have at least US$5,000 to open a mini account. Of course, you can trade with less. But if you’re planning to trade often, I suggest a US$5,000 mini account. Then only trade 1 mini lot per US$5,000 in your account.

Following the rules above will actually solve three problems at once:

1. It gets you into the proper account type from the beginning.
2. It ensures your account is well capitalized.
3. And it ensures you’re trading with the right amount of lots for your account balance.

All three of those are huge components of risk management, which I would say is just as important as picking the next winning trade – because if you do pick winners, but fail to control your risks properly, then you won’t be trading very long.

I’ll be back tomorrow with more Forex tips, tricks and secrets…Till then good trading!

P.S. Looking to take the next step in your currency trading? Our new Cracking the Currency Vault explains how to dive into the foreign-exchange market using eight different currency strategies from ETFs all the way up to Forex. Get the full story on this new course here.

Sean Hyman, “Professor FX” and Long-Time Currency Analyst Explaining How You Can Succeed in the Currency Markets.
Sean Hyman spends his days teaching his fellow professionals in the industry how to trade the $4 TRILLION currency market. Now he brings his 15 years of financial experience to you. From long-term currency strategies, to quick FX-trading moves usually reserved for the professionals, Sean will tell you everything you need to know to succeed in the currency markets.

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