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Forex mini accounts are used to trade certain currencies as it has a number of practical benefits. Mostly government institutions carry the largest share of foreign currency but these are also traded at currency markets in units or lots. Many knowledgeable traders use mini to augment diversification opportunities, and provide better trade permutation and combination. The mini lot method helps to reduce risk in trade. There are many currencies highly influenced by the political or economic changes, and traders can stage-manage investment through mini lot to reduce perils in situations when the market is difficult to understand.
Mini lot refers to a smaller lot (almost one-tenth of the typical lot) in forex currency trade. In a mini lot there are 10,000 units, whereas, a standard lot contains 100,000 units. There are other sizes in which units can be bought such as micro (lot size equal to or less than 1,000 units) and nano (lot size equal to or less than 100 units). There are other units used to examine the profit or loss in trade such as pips, which can help to calculate the real profits. There is different modus operandi adopted by a broker to find out the pip value. To trade – the two currencies are selected and the buyer of the currency will have to offer an ASK price and sell using the BID price.
Uses of mini account
There are many advantages of using different accounts. You can open a mini account to start with a comparatively smaller investment. This is great preference, in case, you are not aware of the market moves and do not want to lose money initially. One can start trading in a mini account where a smaller amount can be used as upfront capital to buy currencies. Those having mini account are not limited to single lot trade. One can use mini lot to trade 10 times in comparison to standard lot and this reduces the overall risk. This method allows traders to gain extra leverage and customize.
Leverage and margins are used in forex, where leverage refers to the condition where the trader borrows money to buy. Lower leverage enhances chances to stay in trade and prevents washing out completely. The capital is set by the broker, who can provide a significant leverage ratio, which means for a smaller deposit one can trade more number of currencies. Most trader initially risk more and forex brokers offer leverage - 500: 1 (or up to 1000:1) but traders are advised to use controlled risk and use stop loss instead of taking leverages. E.g. for $250 leverage one can trade $100,000 currencies across the markets. Mostly the risk on trading is calculated from difference between the entry price and stop loss multiplied to the lot size of the position. High leverage raises the risk. The reduction in pips can lead to loss of money in account.
For an account size of 10,000, one can risk up to $100. A 300 pip risk- signifies the account holder can use 3 micro lots, which is equivalent to $90 risk.
One can take multiple positions at the same time and utilize the leverage factor to reduce risk. The trades can be made at different stop loss and varying leverages.
To find out more about mini / micro and nano lot accounts and trading practices in forex, click 99 Alternatives at (http://www.99alternatives.com).
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