In forex, for the retail investor, things are totally different than the banks and institutions who
trade with each other 24 hours per day on a daily basis and in the millions with actual transactions
occuring (usually 2-3 days later also known as the Spot Value).
Investment banks will take out a credit check on each other, a bit like when a person applies for a
mortgage. Whilst currency trades are placed and completed real-time either by computerised system or
telephone, the actual transfer of funds happens a couple of days later.
However, with the retail forex trader, usually, the trade is only placed in the brokers books and no
real transfer of funds occurs, although the retail investor is in effect trading with the banks at
almost the same quotes and with a very similar spread these days.
So who is the forex broker and what is their relevence in the answer to this forex topic? The retail
investor places their trades through the environment of the margin broker. Trades are placed in real
time and via a trader who receives the order from the investor, either buy (long), sell (short) or
close position.
The broker not only allows retail investors to trade forex live with the banks, but also provides a
system of leverage. This means that the broker only requires a deposit to represent the amount of
currency a person wants to control, so long as the deposit is enough to cover any losses that might
be incurred by the trade.
Take for example a margin leverage of 100:1 given to you by the broker. This means to control
$100,000 of real currency (1 lot), you need to provide security to the broker of only $1000. Each ”
pip” movement in price will cause your equity to increase or decrease by $10. For example if the
currency pair you are trading is GBP/USD (also known as cable) and the price you are quoted is
1.8484, this means 1 UK pound sterling is equal to 1.8484 US dollars.
So, if you are controlling 100,000 units of currency (or you have placed a buy/sell forex trade of ”1
lot”)in the above case, each time the price changed by 1 pip - ie. 1.8484 changes to 1.8485 - you
gain or lose $10 US. This is because 0.0001 x 100,000 = 10 and you have opted to control 100,000
units of currency.
The amazing thing though is that you as a retail trader have only used a security measure of $1000
deposited with the broker in your brokering account and the only cost for placing the trade is a
small spread (no comission in many cases) of say 2-3 pips in which the broker makes his profit
regardless of whether your trade is successful or not. And the chances of you losing that entire
$1000 in the trade are extremely slim, especially if you use risk management and safeguard your
capital from losses by setting a “stop loss” - a topic out of the scope of this article.
So what about mini-forex trading. It’’s a subject which many people seem to want to know about. What
is a mini-forex trading account? What is mini forex trading? Mini Forex trading is quite simple to
explain given the above information. In light of the information that is told to you above about
retail forex trading in general, the use of a mini-account is exactly that!
Rather than trading 1 whole lot each time (ie controlling 100,000 units of currency using only 1000
units of security or deposit to trade for a profit of about $10 per pip depending on the forex
currency pair you and trading) you can use a mini-account (sometimes this is entirely
indistinguishable from a standard account) to trade a fraction of a lot. This could technically be as
little as 0.1 lot (ie $1 profit per pip) or half a lot - $5 profit per pip etc. This is the authors
understanding of mini-forex-trading.
In conclusion then, mini forex trading is explained away by understanding what a ”lot” is in forex.
Once you understand that forex is traded in ”lots” and what ”1 lot” means to the investment
banker/forex trader in the bank and to the retail investor using margin leverage provided by a
broker, you can understand that mini-forex trading is forex trading on a mini-scale. Instead of
trading in lots or multiples of lots (more than one) the retail investor uses a smaller deposit with
the broker and trades for less profit, but less risk as well and not needing so much profit to start
out with, eg 0.1 lots or 0.5 lots. Some forex brokers these days will allow currency trading with a
deposit of as little as $500 into a customers account.
Limited White Label partners are also offered to access our customized online trading platform but
their customers have to open a direct forex trading account with ForexGen Investments. Consequently,
limited White Label partners could be not regulated by a financial authority as they will not hold
customers' funds. This service permits the customer to manage his trading actions freely without vast
administrative paperwork.
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