Micro Account Forex Brokers

micro account featuresGiven the fierce competition these days, it is not surprising many Forex brokers are beginning to offer a broader selection of account types as a means of attracting traders from all walks of life and expanding their customer base. Apart from standard retail and professional accounts, investors now have a choice from micro, mini, and nano Forex accounts. The following article deals with the first type, the micro account.

Trading the Forex markets with a micro account is the best choice for traders on a tight budget with little to no experience. This type of account might also be a good option for investors who have lost their confidence or simply need to try out a new strategy although setting up a demo account is a viable alternative in the second case.

Best Forex Brokers for United States

If you are currently considering whether to set up a micro account or not, you better keep reading this article as it introduces you to everything you need to know about this Forex account type. Also included is information about the benefits associated with micro accounts along with a list of three reputable and regulated brokers that offer them.

What Is a Micro Forex Account?

What Is a Micro Forex AccountIn 2006, LiteForex became the first brokerage to adopt the concept of micro accounts and offer them to its customer base. This breed of Forex account is geared primarily toward the needs of retail traders, who want to join the foreign exchange markets but lack sufficient capital to invest in standard accounts. Micro accounts, or cent accounts as they are frequently called, also cater to those who have capital but are uncomfortable with risking too much money.

Trading activities are carried out similarly to those in standard accounts but everything is on a smaller scale. The minimum lot size of a micro account contract usually amounts to 1,000 units of the respective base currency. Respectively, you make purchases in multiples of 1,000 units.
By means of comparison, one lot in a standard Forex account amounts to 100 micro lots, which is equal to 100,000 units of the base currency. Some brokers would also offer nano accounts where the minimum trading volume amounts to just 100 base currency units.

The minimum trading volume the account holder must commit with is equal to a single micro lot. As for the maximum, it typically differs depending on the equity available in the account’s balance.

As everything is measured in cents here rather than in dollars, traders who are new to the Forex markets can get their feet wet with minimum capital as low as $10 in some cases. Thus, if you deposit $10 into a micro account, you will have a trading capital of ¢1,000; if you top it up with $5, this sum will be reflected as ¢500, and so on.

Of course, your capital will be shown in pence sterling if you choose GBP as the base currency of your micro account. The exact minimum amount account holders must commit with is broker-specific, though. It is possible to find brokerages where the minimum capital requirements for micro accounts are lower than this amount ($10).

Other than that, there are no profound differences between micro and standard Forex accounts in terms of structure. The main distinction between the two is that no matter how much capital you deposit, the micro account’s balance will inevitably be displayed in cents. The financial instruments available for trading, along with their spreads, are the same between both types of account.

Micro Account Holders Can Spread Their Capital Further with Leverage

leverage in tradingThe majority of brokers offer retail customers the option to open leveraged micro accounts. This enables them to spread their small initial capital further and gain greater exposure to the foreign exchange markets. Leverage allows traders to borrow additional capital from their brokers and use it to trade larger volumes than their available balance allows.

It has the potential to greatly boost your returns from successful trades even if you have a micro account. With that said, leverage also has the capacity of increasing your potential losses well beyond the size of your initial investment.

It is essential to remember using leverage, even with a micro account, requires adequate and meticulous risk management. This is normally achieved by setting up trailing stops, stop loss and take profit orders, maintaining smaller positions, and restricting the amount of capital you invest per open position.

As for the maximum leverage you can use with a micro account, it depends on your broker and where exactly it is regulated. Brokers that operate within the EU under the regulations of the European Securities and Markets Authority (ESMA) are allowed to offer leverage ratios of no more than 30:1 to retail customers.

This restriction applies regardless of whether said customers hold micro, mini or standard accounts. In the meantime, there are trading companies licensed in other jurisdictions that offer way higher ratios, with leverages going as high as 500:1 and even 1000:1 in some cases.

Regardless of the maximum restrictions, always ensure you open leveraged micro accounts with brokers that offer negative balance protection to prevent yourself from incurring debt and huge losses due to leverage.

An Example of Trading with a Micro Forex Account

example of trading with micro forex accountTo give you a better understanding, we shall illustrate how micro accounts work with an example. Brokerages typically designate account types depending on the lot size investors could trade with. One trading lot in standard accounts is 100,000 currency units.

One such account obviously calls for a significant amount of initial capital, especially if you purchase currencies or other instruments without using leverage. As you know, Forex pairs are quoted with bid/ask prices and there is often a built-in spread brokerages profit from.

Let’s use the commonly traded EUR/USD major pair quoted like this by a hypothetical broker – EUR/USD 1.2000. This means for every EUR you purchase, you must pay 1.20 in USD. With Forex trading, you are practically betting the value of one currency will change against that of the other currency.

These movements in price value are measured in terms of pips (a pip is the fourth digit after the decimal in the quoted price). Only the rates for the JPY currency are quoted with two decimal places. One pip is incredibly small. It represents the minimum possible movement in the value of a specific currency.

Currency pairs’ values move in fractions of a cent. Because of this, your average profits and losses from each individually traded currency unit are negligibly minuscule, hence the need for placing orders in multiples of 100,000, 10,000 or 1,000 units.

Currency units are aggregated into lots, which provides investors with leverage. Pip value varies depending on your account’s base currency and the Forex pairs you invest in. Suppose you set up your account in USD as the base currency and trade EUR/USD where USD is the pair’s quoted currency.

If so, a single pip of a base currency pair will be worth $0.10 (0.0001 x 1,000) for a micro account, $1 (0.0001 x 10,000) for a mini account, and $10 (0.0001 x 100,000) for a standard trading account. Provided that you find a broker that supports nano accounts, a pip’s worth will be as little as 0.0001 x 100 = $0.01 for you.

To proceed with the EUR/USD 1.2000 example, you believe the value of the base currency (EUR) will increase against the price of the quoted currency (USD). Thus, you open a long position for the EUR and are short for the USD.
Let’s assume the EUR/USD pair moved up from 1.2000 to 1.2073 when you closed the position, which makes for a difference of .0073 pips. What does this mean for you in terms of earnings? You will earn 1,000 units x .0073 = $7.30 if you have a micro account. Your gains will respectively amount to 10,000 units x .0073 = $73 with a mini account and 100,000 units x .0073 = $730 with a standard Forex account.

However, it is also possible for the prices to move against you, causing you to lose rather than earn money. Suppose the EUR/USD pair dropped from 1.2000 to 1.1994 instead of increasing, which would result in a difference of .0006 pips. Therefore, you will lose 1,000 units x .0006 = $0.60 with a micro Forex account, 10,000 units x .0006 = $6 with a mini account, and 100,000 units x .0006 = $60 with a standard one.

Note these losses and earnings will be considerably magnified if you leverage your EUR/USD position because leverage would enable you to open a larger position. The respective leverage ratio determines by how much. Assuming you work with an EU-regulated brokerage, you will be able to leverage the trade for this major pair to a maximum of 30:1.

The Differences between Micro, Mini, and Standard Forex Accounts

differencesThe main difference between account types obviously has to do with the minimum volume account holders can trade with in terms of lots. The lot size is significantly higher for standard accounts than it is for micro and mini accounts. It follows you need a considerably larger investment to start trading comfortably with a standard account.

Another difference stems from the fact micro accounts sometimes have no minimum requirements on deposits. Even if there is one such requirement, the minimum deposit would rarely exceed the nominal sum of $5 or $10.
This is not the case when it comes to standard accounts where there is always a minimum requirement, with deposits usually ranging between $100 and $10,000. Again, the exact minimum varies depending on which brokerage you join. This, combined with the larger lot size, is the main reason why bigger-scale investors choose to trade with standard rather than micro or mini accounts.

Who Uses Micro Forex Accounts?

begginer traderSome traders join the markets to make a living or hope to generate considerable income on the side. This would be impossible with a micro or mini account. Mini accounts have a minimum lot size amounting to 1/10 of the lot for standard accounts, which corresponds to 10,000 base currency units.

Both mini and micro accounts are considered viable alternatives for beginner traders who are yet to learn all the ins and outs of the foreign exchange markets. It is worth mentioning volatility decreases significantly when one trades with less capital. Price fluctuations in micro and mini lots have a substantially lower impact on a trader’s earnings and losses.

With that said, micro accounts are not used by investors who lack experience only. Some well-versed traders also take advantage of this option since it gives them more control over their trading positions. For instance, they might prefer to average in to a certain market trend in tinier increments rather than using large lots of 100,000 units.

Some investors who implement the automated trading approach also prefer to use micro accounts in certain circumstances. They take advantage of the 1,000-unit lots to calibrate and improve their strategies for algorithmic trading under real-market conditions. This enables them to achieve higher profitability at significantly lower levels of risk.

The Advantages of Setting Up a Micro Account for Forex Trading

advanteagesYou have probably identified some of the advantages that result from using micro accounts for Forex trading from what we have said so far. If not, stay with us while we revise them in brief.

  • Traders have more flexibility and greater control over their risk when working with smaller-size micro lots. If the EUR/USD market from our previous example moves up or down by 5 pips with a standard lot of 100,000 units, this would lead to a gain or loss of $50 for the investor, provided they have not leveraged their position.

    Keep in mind a 5-pip movement can occur in a matter of seconds. This is not at all uncommon for the foreign exchange markets. Meanwhile, if you use a micro account, a price movement of 5 pips would result in profits or losses of $0.50 only. The pair’s price must drop several hundred pips against the trader for them to incur more substantial losses.

  • Traders with micro accounts would also benefit from the potential for lower leverage which, in turn, decreases the probability of their balance going in the red. Suppose you have $500 in your standard account’s balance. Purchasing a single standard lot of 100,000 units would require you to use leverage as high as 200:1. However, this is not the case with a $500 balance in a micro account where you can go long or short with a 1,000-unit lot and leverage the position at a 2:1 ratio only.
  • Using a micro account does not necessarily restrict investors. Quite the contrary, you can open larger or smaller positions depending on your individual preferences and risk tolerance. You can purchase/sell a single 1,000-unit lot or as many as 100 micro lots to the amount of 100,000 units in the respective base currency, which corresponds to 1 lot in standard accounts.
  • Micro lots are a great solution for those who utilize algorithmic trading. Micro accounts enable such traders to fine-tune their strategies through more precise position sizing. For instance, you can open a position for 135 micro lots (or 135,000 currency units), which corresponds to 13.5 mini lots. However, with a mini account, you will have to pick either 13 or 14 mini lots. This is far less precise than opening a position of 135 micro lots.
  • Micro accounts are perfect for beginners, who can use them as a stepping stone to serious trading. It enables them to learn without exposing way too much initial capital to risk. This way, they can gain enough experience under their belt before committing with larger investments.

    Additionally, you can deposit significantly lower amounts (as little as $5 or $10 in some cases) when trading with a micro account. Just remember that you should scale up gradually as you gain more and more experience. We recommend you increase your investments gradually rather than jumping from a micro account straight to a standard one.

Brokers Offering Micro Forex Accounts

Micro accounts are great for new retail traders but unfortunately, not all brokerage firms offer them. Sifting through dozens upon dozens of trading websites until you find one that offers micro accounts can be a very time-consuming and cumbersome task. You can skip this step and check the list of brokers we recommend below. All of them are reliable and provide the option to open micro accounts.

XM.com

xm.com promoXM.com is an established brokerage firm that entered the Forex trading industry in 2009. The broker went on to become an industry leader in the years to follow, currently boasting over 2.5 million registered customers across 196 different countries. It offers support for more than thirty languages to the benefit of its motley customer base.

Execution speeds at XM.com are fast, with over 99% of all orders being executed in under a second without rejections or requoting. The broker allows you to trade with over 55 Forex pairs (minors, majors, and exotics), futures, commodities, stocks, and equity indices.

Where account types are concerned, prospective clients have a choice from Standard, XM Zero, and Micro accounts. Micro accounts are available in the following base currencies – EUR, USD, CHF, ZAR, GBP, AUD, RUB, HUF, JPY, PLN, and SGD. Swap-free trading is optional.

There are no commissions while spreads for major Forex pairs are as tight as 1 pip. You can open a micro account with as little as $5. XM.com is licensed and regulated under the jurisdictions of the UK, Cyprus, Dubai, and Australia.

eToro

etoro promoThis is a great solution for traders who are looking to improve their learning curve. With eToro, the focus is not solely on trading. The broker offers tons of educational materials that can greatly improve your knowledge of the Forex markets.

This is reflected in the relatively low percentage (62%) of traders who lose their balance while trading with eToro. This percentage is significantly higher at brokerages with a narrower focus on customer education.

Social trading is made possible with the availability of the OpenBook platform, which enables you to copy the trades of more experienced investors and learn from them in the process.

As for regulations, eToro is a fully reliable broker, with licenses granted by the UK’s FCA, Australia’s ASIC, and Cyprus’ CySEK. In terms of financial instruments, eToro allows for trading across several asset classes, including currency pairs, commodities, cryptocurrencies, indices, and stocks.

FXTM

fxtm promoLaunched in 2011, FXTM (abbreviated from Forex Time) is a global leader in the field of online Forex trading. This is an established brand with offices across South America, Asia, Europe, Africa, and the Middle East.
Its customer base spans more than 2 million registered clients from 150 different countries. The integrity of FXTM is further consolidated by the fact the firm has collected more than 25 awards for excellence over the span of the last nineteen years.

Micro accounts are available for a free test drive in a demo format. You can switch to live trading with micro lots whenever you feel ready. Order execution is instant. As for the base currencies, micro account holders have a choice from USD, GBP, and EUR.

Spreads start at 1.5 pips. There are requirements for minimum deposits with this broker – you must top up your FXTM micro account with at least $10 or the equivalent in the other base currencies. Micro accounts allow you to trade with 25 minor and major currency pairs and 2 spot metals, silver and gold.

Quick Q&A about Micro Forex Accounts

1. What level of risk do I face when using a micro account?

A small investment translates into a very low level of risk. However, most brokers usually recommend such customers to deposit a little more than the required lot minimum as a means of protection against market volatility and adverse price fluctuations.

2. Are there any disadvantages of trading with a micro account?

Although great, micro accounts are not intended for everyone. They are unsuitable for large-scale retail investors who are looking to generate bigger profits. After all, one cannot expect to realize substantial earnings with a nominal initial investment. This type of account is mostly good for beginner traders, although you can still use it if you want to test new strategies for algorithmic trading in the real-market environment.

3. Is this the right account type for me?

This is up to you to determine because it all depends on your individual objectives as a trader. If your purpose is to build up experience in the live markets and improve your learning curve, opening a micro account is a good way to work toward this goal. However, this might not be the most suitable option for you if you are looking for higher profit potential.

4. Should I start with a demo account before I set up a live micro account?

Most brokers on the market allow prospective customers to test their platforms and services by setting up free demo accounts, topped-up with virtual credits. This most definitely is a good way to gain trading experience without risking any of your money whatsoever. Keep in mind the mindset when trading with demo credits is entirely different. You will not be able to experience how it feels to earn or lose actual money. In essence, using a demo account eliminates the psychological aspect of Forex trading. With that said, many brokers allow you to set up a micro account in the demo format before you switch to the live version.

5. How can I set up a micro account for live trading?

To begin with, you need to first find a broker that offers this account format. Feel free to check out the brokerages from our list of recommendations. All three support trading with micro accounts. You register the same way you would with any other account type by providing personal details such as your name, email, residence address, telephone number, and date of birth. Your new live account still requires verification despite the fact you will use it to trade in smaller increments.

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