Did you know that while most Forex brokers would allow you to open an account with less than $100, you'd have a higher chance of blowing up your account in just a few weeks?
It's because the minimum volume of currencies you can trade starts at 1,000 units, which means you'd be using 10x effective leverage already with a $100 account.
If you're a beginner, it would not be easy to learn proper trading if your account can't withstand big price moves because it's already highly leveraged.
Fortunately, thanks to the currency market's accessibility nowadays, some brokers have lowered the minimum lot size to 10 units with a micro account.
But what is a Forex micro account? How is that different from the standard offer of most brokers? And, more importantly, how will it benefit you?
This article will answer those questions, so make sure you read through to the very end.
What is a micro Forex account?
A micro Forex trading account is a special type of account offered to undercapitalized traders who want some exposure in the currency market.
The minimum lot size or volume of currencies you can trade with a micro account is 10 units, which, unlike the standard account, is 1,000 units.
Here is a comparison between the standard account size and the micro account when it comes to tradable volume:
Minimum Units To Trade
Standard Lot Size
Micro Lot and Micro Account
Now, don't confuse the micro account from a micro lot because the two are separate terms.
A micro lot pertains to the minimum lot size (1,000 units) you can trade on a standard Forex trading account.
But there's also a micro lot in a micro account, and that is the 10-unit size.
However, it's not generally referred to as a micro lot but only 0.01 or a hundredth of the micro account's standard lot.
What is the Pip Value in a Micro Account?
To make the calculation much more straightforward, let's use a U.S. dollar-quoted pair on a USD-denominated trading account with USD.Since each pip of a micro lot on a standard account is worth $0.10, a hundredth of that is $0.001 which reflects the pip value of a 10-unit lot size.
Standard Lot Pip Value
Minimum Unit Pip Value
Advantages of a Micro Account
Now that you understand what a micro Forex trading account is and what its key differences are compared to a standard account, here are some of its advantages that you should know about:
1. Gives You Actual Trading Experience
Let's face it. The best way to gain experience in the market is to have some skin in the game.
Yes, demo accounts are useful. There's no denying that.
Whenever you feel like something is off in your real trading, switch to demo and try to figure out what your mistakes are.
But new traders don't exactly subscribe to this and often mistake demo accounts as just a necessary first leg to trading in that the few bucks they make on the demo are enough to qualify them to risk real money.
Truth be told, demo accounts are just inadequate for anyone to fully appreciate trading.
The reason is that trading on demo lacks emotions that are felt only when trading with cold hard cash.
A micro account is the solution to this because it involves the psychology aspect of trading (even for a minuscule capacity) which is the paramount challenge of trading.
2. Allows you to comprehend Forex trading
With real money on the line and emotions involved, a micro trading account forces you to pay attention to what's happening.
Unlike a demo account that you wouldn't care if you left a trade open for weeks, real money would compel you to take a peek at what's going on time and time again.
So when you pay attention, you become curious, and when you become curious, you ask questions and look for answers.
This begins a cycle of learning.
But you may ask, "what's the difference between that and the standard account?"
Well, both accounts offer the same advantage in this regard.
However, which amount would you be more comfortable losing?
$100 or $1,000?
If losing $1,000 will not give you a heart attack, then feel free to learn on a standard account.
The point here is that a micro account is a great start for comprehending the Forex market and experiencing what it's like to actually trade with real money.
3. Pips-centered scoring
Okay, first off, let's define what pips-centered scoring means because it may sound like a made-up word.
Pips-centered scoring is just another way of saying that you score your trades based on pips.
Not the percentage of gains and certainly not dollar values.
Because pips are not altered by leverage.
If you use dollars, you can close a trade at three pips positive and gain $300.
But does that reflect a robust trading system or sheer luck?
The same goes for percentages.
Compare that to saying that you netted 500 pips in one week and which one do you think exhibits superior trading skills?
The chart below illustrates how much leverage was utilized relative to the number of pips acquired for both trades.
This is why pips are a better measure than dollars or percentages -- it's raw and and unadulterated and reflects the quality of your trading strategy or system.
And when you use a micro account, you'd be able to keep score like this since you can trade a volume that's more proportionate to your account size because of the smaller quantities available.
4. Allows you to test your broker
Trading on micro also offers you a taste of your broker's services.
Does your broker have a speedy trade execution, or are they prone to slippage?
A downside of trading on your broker's demo account is that the lightning speed of each trade execution may not necessarily be reproduced on the real.
So, one way to do this without sacrificing a huge sum is to trade using a micro trading account.
5. EA Testing
Now, as a beginner, you may not be deferring your strategies to trading robots or Expert Advisors (EA) yet, but this is indeed another way that you can make use of a micro account.
But first off, what are EAs or trading robots?
Expert Advisors or trading robots are essentially programs that automatically open and close trades based on their coded instructions.
For example, the coded instruction is to open and close trades based on the simple moving average crossover strategy, the EA or trading robot will do just that.
So, even if you sleep, your EA will still be following that strategy and trading for you.
Now, why is this an advantage?
Well, because this would allow you to test your trading robot with little capital.
You will see how effective your EA is on a real account.
And this helps you understand if your broker's trade execution is sufficient in handling orders triggered by your trading robot, especially if the EA is built for high-frequency scalping.
Best Micro Account brokers
If you think that a micro trading account is for you, your next step is to find a broker that offers this type of account.
Listed below are the top three brokers we found that offer micro accounts.
Do take note that FBS and FXTM refer to a micro account as a "cent account," so don't be confused because it's the same as the micro.
How to trade with a Micro Account correctly?
The best way to trade a micro account is to treat it like a standard account.
Or, in other words, don't shoot for large lot sizes because your account is too small, and you want to double it immediately.
You have to learn to be comfortable with how much you can gain every month on your account no matter how small -- even if it's only $1.
Remember, what matters is how many pips you were able to collect because that reflects a reliable trading system.
If you can bank in hundreds of pips consistently month in and month out, that indicates that you are ready for a more considerable investment.
Here are a few steps to take to trade profitably on micro:
1. Determine the exit based on your analysis
The first thing you have to do is know where your entry and exit is, and this is through the trading strategy you are using.
It can be any strategy as long as there is a pre-determined exit level.
If there is, measure how many pips from your entry to your exit and get the value.
2. Calculate your position size
If you are risking 1% of your account, multiply 1% to your account balance, divide it to the number of pips, and get your position size.
For example, your exit is at 20 pips, and your account is $100, which means that your risk is $1 ($100 x 1% = $1).
The position size calculation will look like this:
$1 ÷ 20 pips = 0.05.
Then, take that 0.05 and divide that by 0.0001 to get the number of units you need to trade.
0.05 ÷ 0.0001 = 500 units
Therefore, you need to open a position with 500 units of the currency pair that you wish to trade to still arrive at a 1% risk.
On the Metatrader 4, that is set at 0.5.
3. Manage your trade
The last step is just to manage your trade.
If a trade goes your way, you can adjust your stop-loss levels and move it closer to your entry to reduce losses.
You can also close half your order if you reach your target level and keep the other half open.
Here are other risk management techniques.
Your Turn To Take Action
Now that you know what a micro account is, its advantages, the techniques for using it, and the brokers that offer this service, what can you say about it?
Do you think this type of account will benefit you in some way?
If yes, how do you plan to trade with it?
Let us know what your thoughts are on the comment section.