Forex : Forex Training
How to use a Mini Account for Maximum Effect
For the absolute beginner, Forex training can take some
years. During this time many novice traders stay with a
free demo account from an online broker determined to make
consistent profits in the demo account before going 'live'
with hard earned cash.
That approach is certainly cautious and wise. At some point
however, it can be advantageous to switch to a mini account,
to speed up the learning curve.
Why Switch From Demo To Mini
The reason is this:
No matter how disciplined you are and no matter how seriously
you treat a demo account constantly trying to imagine you
are trading with real money, a demo account is still a demo
account! That has a huge psychological overhead whether
you care to admit it or not.
Once you start trading with real money you will realize
how different the real world is! But how can you minimize
the cost of Forex training and be reasonable in how much
you spend on your education?
Enter the mini account! With a pip valued at a dollar or
less, and with a minimum opening balance of around 250 to
300 dollars, you can continue your Forex training with low
Notice that expression "continue your Forex training."
Yes, a mini account is still a practice account. That is
a good way to view it. What if you open one for 250 dollars
and a couple of months later it's exceeded the margin call
(blown in other words)? Then your Forex education has just
cost you a little less than 250 dollars (taking into account
the small remaining balance).
Obviously you wouldn't want to do this many times. It could
be after blowing a mini account you decide to go back again
for a couple of weeks to the demo and fine tune your strategy.
Then when you feel confident again, fund your mini with
another one or two hundred dollars.
Some may object and think this is a waste. Putting it in
perspective, the cost is very small. After all, it's the
cost of your Forex training education. Some persons spend
thousands of dollars for a couple of days in a seminar and
think nothing of it. One new trader I heard talking to another
was asked how much he put in his first account. His reply?
"$15,000". It was gone in a couple of months.
A cautious, one step at a time, $100 at a time approach
will be far less stressful on both the nerves and the pocket
unless you've got money to throw at the wall.
How To Maximize The Mini Account
Now once you have traded successfully in a mini account,
bringing the balance up, perhaps doubling or tripling your
initial starting balance, you can now really start to maximize
the benefits of a mini account.
While strict risk management is crucial, and somewhere
between 1 to 2% of your equity should be the maximum risk
on any one trade, some Forex training educators suggest
making that more like 5 to 10 % when you only have a few
hundred in your mini account. This will allow you to start
trading in multiple lots.
For example, suppose you build your mini account to $600
and then start to trade with 2 lots. You then set a conservative
profit target for the first lot, and a more ambitious profit
target for the second lot. As you take your first profit
you move your stop up to protect the second lot so you are
at least in a 'can't lose' trade from there on.
If the balance drops below $600 then go back to trading
one lot until you pass the threshold again.
Once you start trading multiple lots in a mini account
using this safety net strategy, your account will begin
to grow slowly and steadily.
At some future time, perhaps once you have reached a couple
of thousand dollars in your account, you may wish to then
implement more stringent risk management principles and
go to 1 to 2% of your equity on any one trade.
This approach may not be appreciated by everyone. It depends
on your nature and character. For me, it has helped greatly.
To really start moving forward in your Forex training it
is necessary to move from a demo to a mini account at the
right time. At the same time it is necessary to get over
the fear of trading live.
View the mini account as a Forex training account, fund
it very conservatively, switch back to a demo when you feel
the need, and aim for raising your balance so you have enough
equity to start trading multiple lots.
In this way you can maximize a mini account so it really
drives your Forex training to completion.
Michael A. Jones is a writer, webmaster and Forex trader.
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