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The Forex mini account is more or less what it says it is. Like a regular account but on a smaller scale. Instead of trading currencies at a minimum of $1 a point you can trade at a minimum of 10 cents a point. Instead of needing at least $2,000 to $2,500 to open an account, you can open one with no more than $250, and even less if you look around.
It's presented as a solution to the problem of getting the small guy into forex trading. Forex has taken off in popularity in recent years, and now more and more people who are losing their jobs or otherwise facing an uncertain financial future want to share in the fabulous profits they've heard are being made.
The minimum amount required to open a regular account was often too much for such people, but now the mini account is there for them to get started. Moreover, by trading in smaller amounts and therefore risking less on each trade, potential losses are kept much lower.
All this is well and good, but the basic problem of newcomers to Forex losing all their money within a few months remains. This problem has not shrunk with the introduction of the mini account. In fact it is as bad as ever. Let's have a brief look at why this should be.
The reason lies in the nature of the Forex market. It is the most volatile, unpredictable market in the world. Even successful and experienced traders with all the charts and indicators they need at their disposal often have losing trades. Even when all the indicators, the chart, and the latest news points to the price of a certain currency pairing rising, it can still fall sharply from time to time. The same applies when everything points to a fall in price - the price can most annoyingly rise by 50 or even 100 or more points at a time, before doing what all the indicators are saying it should be doing. Anyone who has traded in Forex for any length of time knows this.
Nearly all Forex training manuals, videos and courses teach that you should use tight stop losses of 20 to 50 points in order to limit your loss in a trade that goes against you. At first glance this sounds like good advice. Because of the volatility of the Forex market, if you don't have many thousands in your Forex account then you could be wiped out completely if you have a couple of losing trades. Unless you have stop losses, that is. And they should be placed so that you are risking no more than around 5 per cent of the money in your account, or so the training manuals tell us.
The question that comes to mind is, does the mini account protect the Forex trader from the dangers of losing trades, and give him a better chance of success?
Since the mini account is the same as a regular account except on a smaller scale, it's clear that the trader is in no better a position. He is still open to the dangers of the Forex market, though he risks much less money on any one trade. So instead of eventually losing all his $2,500 he eventually loses all of his $250. Or at least 95 per cent of new traders do.
The Forex mini account has not changed the fact that the Forex market is a good place for the new online financial trader to stay away from unless under expert tuition from a successful trader. But at least new traders can learn this at a lower cost.
About the author:
Philip Gegan is a retired UK lawyer who has studied the financial markets since 1991, and actually trades them for profit. You too can make profits such as 70% in less than a week on gold at http://www.onlinefin ancialtrading.com |
