Good money management is the essential key that many currency traders miss. Many traders ignore adapting good money management rules at their own peril. As a consequence, they get their account blown in a few weeks of trading. You need to become a disciplined trader. Trading discipline means developing a trading system based on money management rules that limit your risk and avoid making trading decisions based on emotions. In the end, every trader has to develop his/her own insights and systems.
One of the worst blunders that traders can make is to try to trade without sufficient capital. This does not mean that you should have a lot of money before you start trading; it only means that you need to have enough capital in your account to take advantage of the movements in the markets. Low capital increases your chances of getting blown out.
The minimum amount required to open a standard account with many forex brokers is $ 2000. You can start with $ 2000. However, it is recommended by most of the professional traders that you should start with at least $ 5000 to get good results. A trader with limited capital is always a worried trader always looking to minimize losses beyond the point of realistic trading. Never ever trade live without practicing on the demo account for a few months.
A regular account or a standard account often also called 100k account let’s you trade a $ 100,000 standard lot with a $ 1000 deposit. This $ 1000 is kept as the margin by the broker. This is a 1% margin.
When you open an account with a forex broker, you must first determine what the default margin requirement is. You can change the account margin requirement to whatever you feel comfortable with.
If you start with a 2% margin, it will cost you $ 2000 to trade one standard lot of $ 100,000.
Many brokers offer huge leverage to the new trades. This is done to entice them to trade more. You can get a leverage of up to 400% by some brokers. Using 400% leverage means trading $ 400,000 with a $ 1000 deposit. With a small deposit you are controlling a huge amount. Be careful! You will get wiped out in a moment. Don’t use more than 4% leverage while trading in the start. Too much leverage is dangerous for you.
With practice and more experience, you can increase the level of leverage in your trading. It’s not that leverage is bad. Its just that you need to understand and learn how to use it. You can only do so with practice.
The mini account was developed to accommodate investors who were looking for diversification of their stocks portfolios. You can open a mini account with a deposit of $ 300. This small dollar requirement allows many investors to participate in the forex markets who were previously unable to do so.
One lot on a mini account is equal to $ 10,000. This is known as a mini lot. As compared to a standard account, on a mini account you have a different lot size. You only need $ 50 to trade a mini lot of $ 10,000. This means a leverage of 200%. As compared to the standard account, pips size on a mini account is also small. A pip size on the mini account is equal to $ 1. 1 pip is equal to $ 10 on a standard lot.
If you lose 100 pips on a mini account, it means losing only $ 100 as compared to losing $ 1000 on a standard lot. You can say a mini account reduces your risk by 10%. But it also reduces the amount of profit that you can make. Start with at least $ 500 on a mini account. A mini account is a great way for beginners to practice forex trading. Once you develop the feel of how the currency markets work, you will have to open a standard account. It is on the standard account that you can make good money.