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 whenever 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 risk.
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 would not 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 critical, 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 not 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, once 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 very much.
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.
Source by Michael A Jones