This article looks at what a forex brokers micro account is and how to trade on the account.
In previous years, the foreign exchange market was traded by large corporations, central banks and hedge funds exclusively. It was a trading market for the wealthy and elite in the financial industry. In fact, the trading size for a standard trading account was approximately $100,000. However, the introduction of the online forex trading market changed this trading behaviour allowing access to retail traders, along with smaller and less costly accounts.
The micro account
The majority of average individuals do not have the large sums for a standard trading account, thus the mini and micro accounts were born. Instead of trading in lots of $100,000, the micro account allowed lots of $1,000. As convenient as this was, a trader is not able to make much profit trading small lots. This prompted the introduction of leverage.
In order to provide traders the opportunity to place large positions using small capital, forex brokers offers the option of leverage. The amount of leverage will different between brokerages and is dependent on your trading requirements. It is important to note that leverage does raise the risk of a trade and thus must be used with caution. While it can increase a profitable trade dramatically, it can also cause a loss more dramatic than if leverage had not been used if the trade should turn bad. It should be noted that the leverage levels offered on a micro account are far less than on a mini account.
Advice to using forex brokers micro accounts
1. Start small
The majority of new traders enter the forex market without any training and can easily fall into trading traps, particularly when face with leverage. It is recommended that you begin with micro accounts and do not use vast amounts of leverage. While one may be tempted to chase that ‘big tuna’, it is best to begin with a safe amount and work your way up.
2. Set stops
It is also vitally important to implement a risk management plan. All trades present with a degree of risk, and utilising leverage only increases that risk. By introducing risk prevention techniques into your strategy you can reduce the likelihood of losses. The most commonly used methods are those of stop loss orders and trailing stops. The rule of thumb for setting these stops is to place them at a price that may be reached if you are definitely at the bad end of a trade.
3. Keep a trading journal
In order to be a successful forex trader, you must not only execute effective trades but you must learn from those trades as well. It is important to keep a trading a as this will allow you to monitor your performance and review any mistakes made. This log will contain detailed records of all trades completed including the date, time, currencies traded, results and even reasons behind the trade. By reviewing these transactions you can examine your errors and adjust your strategy as needs be.
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