Forex Micro Accounts — Trade Small Lot Sizes with the Best FX Brokers
Not all traders are bestowed with sizeable capital to trade standard lots and hold substantial positions in the Forex market. In fact, most retail traders access the market with just a few hundred dollars or a few thousand dollars at most. It is also not uncommon for traders to try their hand at FX trading with a minuscule trading capital as low as $5. However, it is nearly impossible to place standard order lots with such a small amount of money, even with high leverage, which is where Forex micro accounts come in handy. This article will discuss Micro Forex trading, our most recommended Forex micro account brokers, and how to open a micro Forex account.
Best Forex Brokers for Micro Account
|XM||Min. Deposit: $5||Max. Leverage: 1:1000||
||Visit XM XM review|
|AvaTrade||Min. Deposit: $200||Max. Leverage: 1:400||
||Visit AvaTrade AvaTrade review|
|IG||Min. Deposit: -||Max. Leverage: 1:200||
||Visit IG IG review|
|eToro||Min. Deposit: $100||Max. Leverage: 1:400||
||Visit eToro eToro review|
|FXTM||Min. Deposit: $50||Max. Leverage: 1:2000||
||Visit FXTM FXTM review|
What Is Micro Account in Forex?
To understand the concept of micro lot trading, we must first understand the meaning and significance of a standard lot. One standard lot in the FX market is equivalent to 100,000 units of the base currency. For example, when we specify trading 1 standard lot of the EUR/USD pair, we usually denote how much USD is available to buy or sell for 100,000 units of EUR at the current market price. Therefore, if the EUR/USD conversion rate is 1.10 in a hypothetical scenario, for every 100,000 units of EUR, we have to give 110,000 USD. Conversely, if we sell 100,000 EUR, we expect to receive 110,000 USD, spreads and commissions aside in both cases.
The same underlying formula applies for every currency pair in the market, the only difference being the exchange price and pip value. Because of constant fluctuations in price, owing to volatility and volume changes, traders find an incredible opportunity to speculate on price movements.
To trade 1 standard lot, traders will need to invest at least 100,000 units of the base currency, which is impossible for smaller retail traders. Of course, leverage can indeed help to a certain extent since a conventional leverage of 1:100 may bring down the margin requirement to 1,000 units of the base currency, but this is very risky. Even a small 100 pip move against the trader’s position can lead to a 100% loss.
To facilitate a more conducive trade environment for smaller retail traders, a handful of brokers offer the option of a Forex micro account, where 1 micro lot equates to just 1,000 units of the base currency. Therefore, orders can be placed at the market condition with just 1,000 units, while with a 1:100 leverage, traders can open a position with just 10 units of the base currency.
A few forex trading brokers even offer an insane leverage of 1:1,000, where micro Forex trading can be done with just 1 unit of the base currency. However, in this case, the risk is manifold as even a small 10 pip move can wipe out the entire account. Nevertheless, if we discount leverage, smaller traders are still at an advantage since they can place orders with a much smaller amount of trading capital.
The Essential Differences between Standard and Micro Forex Accounts
|Standard Account||Micro Account|
|Trading involves a standard lot, which is 100,000 units of the base currency.||Trading involves a micro lot, which is just 1,000 units of the base currency.|
|This requires a higher initial deposit.||The accounts are offered with the least initial investment requirements.|
|The smallest order size is 0.01 standard lots.||The minimum order size is usually 0.1 micro lots, but some brokers may support order sizes as low as 0.01 micro lots.|
|The pip value is higher.||The pip value is usually lower.|
|Profits and losses are less pronounced.||Profits and losses are more substantial, with a higher probability for margin calls.|
|The use of leverage is usually limited, and traders may have to account for higher minimum margin requirements.||This provides access to high leverage with very low margin requirements.|
|This offers access to ECN/STP accounts.||Even some of the best Forex brokers for micro account may not offer ECN/STP for micro lot trading.|
|Standard accounts may provide tight spreads and commission-based trading.||Micro lot accounts may not provide tighter spreads and commission-based trading, which can result in higher trading costs.|
The Benefits of Forex Trading Micro Accounts
Trading the market with a Forex micro account has many benefits and advantages. Here is a list of pros:
- The entry barrier to trading is reduced considerably. A few Forex micro account brokers allow their customers to place orders with as low as 0.1 micro lots, which, along with high leverage, helps traders increase their market exposure substantially.
- Micro Forex trading with a small capital and reduced leverage is a great real-life alternative to demo trading since it includes all the emotions, real-time market conditions, and order execution policies of a real account. Therefore, traders can test their strategies at a much-reduced risk, even though there is a risk of loss.
- It is an awesome opportunity to test trading strategies, evaluate a broker, and become familiar with a trading platform with low-to-moderate risk. It is natural for a small section of traders to question what is micro account in Forex, and they may be skeptical of its real-world implications. However, most professional traders manage a small micro Forex trading account or open a micro Forex account at a new broker to evaluate their trading performance and order execution policies.
- Forex micro accounts are great for those who want to hedge their positions between intraday and scalping. At times, traders may like to hold on to their long-term positions while looking to make quick profits during short-term trends.
The Risks Associated with Micro Forex Trading
Forex micro account brokers may provide a great deal of flexibility to retail traders, but you should be aware of some of the major pitfalls of Forex micro accounts:
- Forex micro account brokers may provide access to the smallest lot size and high leverage, but combining both is a recipe for disaster. Margin calls are frequent and common in accounts that use small lot sizes, resulting in larger losses than conventional standard lot accounts.
- Traders may have unrealistic expectations of earning big money with a smaller initial investment. It is not uncommon for traders to chase big returns with modest capital, which forces errors in trading strategies and emotional judgment.
- Since the amount of money is too low, traders may overtrade to compensate, which may lead to cumulative losses. The fear of missing out, leaving money on the table, and greed are some of the problems associated with these smaller lot trading accounts.
- Traders may employ risky strategies and poor money management skills to trade with these smaller accounts, which usually leads to margin calls and account wipeouts. Smaller traders may be unable to earn profits or consistently withstand the drawdowns.
Is There Any Specific Requirement to Open a Micro Forex Account?
There are no specific requirements to open a micro Forex account per se aside from the usual requirements imposed by a broker. The account opening procedures are usually the same for both standard and micro accounts, with traders being offered the option to choose between a standard and micro account during the registration process. All other factors—such as account management, depositing funds, withdrawing funds, and account maintenance—are also usually the same.
Of course, there are a few differences in order execution policies, spreads, slippages, commissions, and liquidity since smaller lots are usually filled faster with minimal volume constraints through a market maker protocol. On the other hand, standard lot accounts may use ECN/STP bridges, where orders might be transferred to a liquidity pool. Make sure you understand all the inherent differences between both account types before trading with real money.
How to Find the Best Forex Brokers for Micro Account
All the brokers we recommended at the beginning of this article offer micro lot trading opportunities. However, you can browse through our detailed broker reviews for more options as we only recommend companies that offer the best FX platforms and excellent trading conditions. Our recommended brokers provide a comprehensive collection of trading accounts with unique features and numerous trading functionalities to offer some of the best trading conditions in the entire market. However, you should know what is micro account in Forex and be aware of all the risks of smaller lot size trading and high leverage.