Forex Trading has opened up to the general public, the masses, for some years now. The credit for this undoubtedly goes to the foresight of brokers, who have broken down the barriers to entry and freed trading from the so-called "obligation of professionalism". What exactly does "breaking down the barriers to entry" mean? Simple: reducing costs.
What a Forex Trading Account Involves
This reasoning mainly involves a hot topic: the Forex trading account. Talking about a Forex trading account means talking about the capital available for trading. It is obvious that ordinary people, in general, do not have large amounts of capital, which is the prerogative (on average) of a professional trader or an international investor. In short, brokers allow trading even with small accounts, hence with limited starting capital.
Minimum Deposits and Micro-Lots
In most cases, the minimum account coincides with the initial minimum deposit. Today, it is possible to start trading with trivial amounts. Some brokers require an initial deposit of at least 100 euros, which is an amount affordable for everyone. Not only that, they allow, through the combined mechanism of leverage and micro-lots, to place really low trades.
How Lots, Mini-Lots and Leverage Work
When a trader opens a position, in fact, they buy a "contract", which is called a lot. A lot has a value of 100,000 currency units. So, going long on the euro-dollar necessarily means buying a lot, which is equal to 100,000 euros. However, brokers also make mini-lots and micro-lots available, which are respectively equivalent to one-tenth of a lot and one-hundredth of a lot, therefore 10,000 and 1,000. Then there is leverage, which allows you to move a volume higher than the real capital through a multiplier. If the leverage is 1:100, and you buy a micro-lot, it is possible to open a position with 10 euros. Contract sizing works differently in other markets; for how it plays out in stock index derivatives, see e-mini futures. The commodity side has its own cost structure too, covered in gold futures.
The Limits of Trading With Small Capital
This is in theory. In practice, it is not always wise to operate with such low figures. If you open an account with only 100 euros, unless you intend trading as a recreational activity, the hopes of getting rich are rather low. A good trade, when it hits the target, puts in place on average 1 or 2% profit. It is clear that trading with 100 euros means trading with little or nothing. As the saying goes: you can't have a lavish wedding with meager means.
The trader is therefore called upon to make a choice, or rather to find a balance. In short, they must find a compromise between the need to create profit and the equally important need not to squander their assets.
