This article looks at the limiting of foreign exchange market risks through the use of the mini account.
When you trade on the foreign exchange market you will have a choice of different trading accounts. The largest account is the standard account and this is the one that most traders look at using. The problem with this account is that the risks are higher than when you use other trading accounts. To minimise these risks you should consider the use of the mini account on the foreign exchange market.
What is a Mini Account?
Before you can understand how the mini account limits the risks that you face you need to consider what this account is. The mini account is the middle account that you can get. The biggest is the standard account and the smallest is the micro account. The problem is that many brokers do not have the micro account on offer because they do not feel it is worth their while.
The Pip Value
The mini account offers the use of mini lots which have a pip value of $1. The smaller value of the pip with these lots is one of the reasons why you are going to have lower risks with this account. When you have a larger pip value with the lot then you are going to have higher risks. The bigger the pip value the bigger the losses are going to be from a single movement.
The standard lot will have a pip value of $10. This means that if you have a loss of 10 pips then you will be losing $100. However, if you have the same loss with a mini account then you are only going to be losing $10. This is a major difference and you have to consider this when you look at trading.
The Capital You Need
The capital you need to open the mini account is much lower than the amount you need for the standard account. This can change the risks of the different accounts because the more capital you have the lower the risks should be.
The Risks of Leverage
Most traders will look at the pip value risks that you have with the different accounts. The leverage that you can get with the different accounts will affect the risks that you face. The standard account will have the highest amount of leverage that you can get from the broker. There are a lot of brokers that offer higher amounts of leverage with the standard account because of the capital that you are going to be using.
If the broker is limited to 50:1 leverage this is what you are going to get with the standard account. The mini account from this broker could have a leverage amount of 20:1. This is due to the risks of using high leverage with low capital. When you have lower amounts of capital you are going to have a higher risk when you use leverage. This is due to the limited buffer that you have for the losses that can come when you use leverage.
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