What Is a Micro Account?
A micro account caters primarily to the retail investor who seeks exposure to foreign exchange (forex) trading but doesn't want to risk a lot of money. A micro account's smallest contract, also called a micro lot, is a preset amount of 1,000 units of currency, or one-hundredth of a standard lot.
Forex traders wishing for greater sizes can also trade inmini lotsandstandard lots.
Key Takeaways
- A forex micro account allows beginners and retail traders to engage in foreign exchange trading using smaller trading sizes.
- A micro account's smallest contract, also called a micro lot, is a preset amount of 1,000 units of currency, or 1% the size of a standard lot.
- The minimum volume that a trader can transact is one micro lot, while the maximum volume will usually vary with the amount of equity in the account.
Understanding Micro Accounts
A micro account is a common type of account that allows investors (mainly retail traders) to access the forex market. It is one of three types, the other two being mini and standard.
This type of account is usually used by beginner traders, but can also be used by experienced traders to test out strategies in real market settings. Forex micro lots are equivalent to 1,000 units of the base currency. Essentially, a standard account lot is equal to ten mini account lots, which is, in turn, equal to ten micro account lots.
- 1 micro lot = 1,000 currency units
- 1 mini lot = 10 micro lots = 10,000 currency units
- 1 standard lot = 10 mini lots = 100 micro lots = 100,000 currency units
While micro accounts are geared toward ordinary retail traders, standard accounts are usually used by large tradersand those hoping to make a living or significant income throughforex trading.
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Special Considerations
Depending on the type of leverage that an investor wants to use, immense gains can still be achieved through a heavily leveraged micro account, though the losses can also be amplified. These accounts help beginners get a handle on trading and become exposed to market volatility, all while learning the basics of risk management.
The main reason that investors open micro accounts is that it affords even small-scale retail traders the ability to trade like professionals. A prospective trader can buy and sell forex pairs the exact same way as anyone that is using a standard account, but with a much smaller equity stake.
Most micro accounts do not have minimum deposits, and, even if they do, it is usually a nominal amount, like $50. Standard accounts, on the other hand, generally have minimumdeposits ranging anywhere from $500 to $10,000.
As with all types of accounts, the minimum volume that a trader can transact is one lot, while the maximum volume will usually vary with the amount of equity in the account. Through leverage, a trader using a micro account can run long-term positions that handle short-term price fluctuations.
