Is it necessary for a newbie to start with a 'micro' account?

Trading Discussion
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So, I’ve been reading that newbies make the mistake of starting out with a standard account and they should not even think about doing that as a beginner and must always begin with a micro account etc. etc. But I haven’t been able to understand why. What difference does it make? I couldn’t find any difference between a micro or standard account besides the fact that 1 lot = 1000 in a micro and 1 lot = 100,000 in a standard. So, keeping risk management in mind, I should not trade more than 10,000 quantity per trade. So what difference does it make if I buy 10 lots in a micro or buy 0.1 lot in a standard account? I can still use 1:100 leverage in both types of accounts.

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I’m trying to understand why its emphasised that newbies should start with a micro account?

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Wrong understanding here, should be
0.01 lot = 1000 unit and
1 lot = 100,000 unit.
Regardless of micro or standard account.

In a micro account, you are allow to enter 0.01lot per position, , but in a standard account you are only allow to enter 0.1lot per position.

In a 1:100 leverage account, and a initial capital amount of $1000. A 0.1lot position utilises 100% margin.A 0.01 lot position utilise 10% margin. If the specific broker’s margin policy is such that they will close all of your position the moment your utilised margin exceed 100%. That means if you were to enter a 0.1 lot position, you have no room for drawdown at all. Zero drawdown! Your trade have to go into the positive zone the moment you enter a 0.1 lot trade. Your trade have to register a positive 0.1pip net gain. You don’t even have room for a negative 0.1pip net loss. If you get a negative 0.1pip loss. Your broker may close your position immediately, depending on each specific broker margin policy.

That’s mean if you want to trade a 0.1lot per position. You will need to open an account with $10,000? Entering 0.1 lot will utilise 10% of available margin. You will have 90% available margin for a drawdown.

In pip terms, assuming the currency pair you are trading is +/- $1 for a 0.1lot per 1pip net diff. Since 0.1lot utilise 10% margin which is $1000 of the $10,000 account. You have room for $9000 drawdown(90% margin). Meaning $9000/1 = 9,000pip (net$Gain/netPipGain) for drawdown. A 0.1lot position entered will equate to room for 9000pip drawdown on a $10,000 account. A 1lot position entered will equate to room for 900pip drawdown on a $10,000 account.

Please correct me if i’m wrong. I think my maths is correct though. If i’m wrong i to get to learn.

PS : The point here is that a micro account, allow you to open a $1000 account. For leverage 1:100 micro account, you can trade with 0.01lot per position and still have 90% available margin for drawdown. For leverage 1:100 standard account, you can’t trade with 0.1lot per position, otherwise you would have utilised 100% available margin and will have no room for drawdown at all! Therefore, for a standard account, you will need to deposit more than $1000 to allow room for drawdown. For poor folks like me, how many people can afford to open an account more than $1000?

Your broker’s way of illustration is misleading.The way they define micro account is different. Their context is different. Not a good way to illustrate, i would say.

With such kind of illustration, i feel that broker may be shady. Just a hunch. Personally, i would stay away from broker with such illustration.

Back to your question, why should newbie start with micro account? It is because most newbie will lose their 1st live account. It is better to lose $1000 than losing $10,000 isn’t it?

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I think there’s nothing complicated here. If you open a Micro account, 1 LOT equals 1000 units, instead of 100,000. This is very important information and have to keep in mind if you decide to open a Micro account.

No offense, but why is this shady??? I’m trading with XM, on both Micro and Zero accounts, no problems so far.
Please don’t confuse beginners.

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If you open a Micro account, 1 lot equals 1000 units. So, if you buy 10 lots on a Micro account, that should be 10,000 units.

Now… if you open a Standard account, 1 lot equals 100,000 units. If you trade 0.1 lots on a Standard account, that should be 10,000 units.

They offer Micro accounts for traders with small amount of money AND who are planning to trade without (or with very low) leverage.

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Moreover, let’s say I only want to trade with $10. So if I open a Standard account, I’d have to trade with AT LEAST 0.01 lots. Now let’s calculate… 0.01 lots (on a Standard account) is 1000 units, so 1000 / 10 equals 100. That would be 100:1 leverage.

But what if I want to trade my $10 without leverage? Go ahead and open a Micro account because the lot size is smaller. 1 lot equals 1000 units so I can trade 0.01 units which equals 10. No leverage here. Easy.

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I could be wrong. Just my hunch. I apologise for my lack of financial knowledge. I have no intention to confuse beginners. I just say what i feel. What’s wrong with that? No freedom of speech?

Well, correct me if i’m wrong and enlighten me why representing 1Lot = 1000 unit is a good illustration for micro account. Anyway, i did notice that they did mention the leverage could be 1:1, thus, in that sense, 1lot = 1000 unit would be correct for micro account, i think. Still, i do not think it is a good way to illustrate. That’s a subjective thing. I don’t like it. Just as i don’t like to eat durian or banana.

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Seems it is only a issue of nomenclature in order to simplify trading with miniscule amounts. I agree it is confusing at first glance for those not familiar with this particular broker and for whom normally 1 lot = 1 standard lot and 1 microlot = 1000.

I think the answer is simply because of this:

When brokers want to allow traders to trade with microscopic amounts they would otherwise be trying to deal with various quantities of: “0001 lots errr, wait a minute, or is it .001 lots, errr or is .000001 lots, errr, hmmm, how many should I take to risk my 50 dollars” types of situations!

Its a bit like banknotes in hyperinflation, the zero’s get complicated and it is far easier just to knock them off and have one type of “1 lot” in a micro account and a different “1 lot” in a standard account.

Accommodating and encouraging such mini trading, together with a total lack of education and trading, is a key reason why we have such a high failure rate in forex - it is like Germany allowing driving on the autobahn with no licence and no driving instruction - and only 0.01 litres of fuel in the tank…

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Jas, by the way, you better open a Zero account because the spread is extremely low and the commission is only 2x $3.5 (for opening and closing the trade) per 100,000 units traded. :wink:

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Allowing them (including me) is okay… the only problem here is the lack of education on the trader’s side. :smiley: :smiley:

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Sounds like your colleagues coming up to you out of nowhere to tell you that you’re a thief, and they just walk away from you and never talk to you again… :smiley: If we’re talking about freedom of speech…

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I don’t personally agree with that at all really. If someone is going to try and trade with only a few dollars there is:

  • far greater limitation on flexibility to provide the necessary “wiggle room” or to give a trade room to breathe
  • far greater stress regarding losses
  • far greater pressure to move up beyond the “cents” profits which means temptation for bigger risk taking
  • far greater likelihood to drop to a balance that realistically prohibits further trading
  • far less ability to develop variations and improvements

If someone cannot trade with a reasonable amount then they should start with a demo until they a) are sufficiently competent, b) have accumulated sufficient funds to avoid the above pitfalls.

Having a situation where a huge majority of little accounts are losing their money only distorts the industry and its reputation and creates additional regulation that the industry would not otherwise really need at all.

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Agree with Manxx, but appreciate not everyone has access to large sums.
Trade on demo until you have proven your strategy/system works.
But,If you later open an account and only have a small amount of cash, try Oanda ( I use them) you can trade any quantity you want, you’re not tied to micro, mini, or full lots. If I wanted to I could trade 87, 193, 1654 units or whatever else took my fancy

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Thanks for explaining.

I see now. Maybe that’s why i feel it is shady. Ingenious broker. Feeding on poor people. Well, i got to hand it to them. For offering people to trade live for a small school fees (busted account ).

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Well, i tried Oanda before. The platform is quite good. Execution great. Deposit and Withdrawal fast. The only problem is, max leverage is only 1:50. I can hardly breathe.

Okay, okay, my mistake. The broker may not be shady. I hereby officially apologize to XM broker. Please pardon me for my ‘quick tongue’.

I don’t read books many, don’t bully me. :joy:

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Hey @Mordengaard, I’ve just PM’d you some details about XM…

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First thing to do on Monday morning… :smiley: :smiley: :smiley:

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Don’t harp on it . . .

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Anyway, @jas0992 got a lot of useful replies here, so, dude, what do you say?

I don’t want to advertise XM, however, I see that you’re planning to open an account there AND I have been trading with them, so let me tell you my experience:

  1. they offer a low-spread Zero account
  2. can deposit thru local bank transfer (can’t use my Visa card to deposit money from this country because it’s blocked)
  3. when I withdrew some money, they directly sent it to my local bank account on the same day
  4. there’s negative balance protection so losses can’t exceed deposits
  5. customer service has been okay so far (was just testing couple of times with random questions)

They also get some negative feedback on other websites, mostly from people who have no idea about trading… so once again: this is my personal experience.
If I feel and experience something shady about them, I’ll change brokers immediately.

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The EU’s soon to be introduced 30:1 leverage will be an absolute boon for your broker and the upstream Liquidity Providers…your funds are much better in their interest FREE account than yours…

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Reduced exposure will dramatically decrease the cost of business providing funding to their various cashed up Market Maker / Counterparty Brokers…

Please be aware your substantially increased account will continue to be their Asset…
(see below)

What the bankruptcy of a broker means to its clients
The whole point of filing for bankruptcy is to protect the person filing for bankruptcy. In the case of a forex broker who files for bankruptcy, they become essentially untouchable because the bankruptcy protects them from claims by any party involved. Neither the liquidity provider nor the clients can claim their money, and the broker can remain protected by the law.

For the client whose account was already wiped out, they would have nothing to lose. There were still some clients who either didn’t trade that day, didn’t have any trades with a Swiss Franc pair or those who were long on the Franc and made a killing. These traders would be stuck because they could not withdraw their money, but wait until the dust settled.

For some forex brokerages, this was the end of the line, and they closed up shop.

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Interesting conversation, guys. In my very limited knowledge, I don’t think there should be a problem whatever quantity you’re trading as long as you’re doing proper risk management. Max 2% risk per trade seems to be the norm. So, if I have a $1000 account and I intend to place stoploss at 50 pips. Then my trade size is going to be 4000 quantity (0.04 standard lot). This way I’m doing proper risk management. Am I right?

Yes, I have made a Zero account. I don’t mind commissions as long as I get really low spreads.

Have you ever had a problem with slippage? That your take-profit or stop-loss wasn’t executed when the price hit it? Do they offer guaranteed execution of TP and SL?

Customer service so far isn’t bad. Their live chat is mostly online whenever I tried contacting them.

Can you tell me what regulatory body is responsible for your account? They are multi-regulated but what regulation is responsible for your account is based on your country. I asked them. For my country, I will be regulated by Belize. Not too happy for that. I wanted FCA UK or ASIC Australia which are credible regulatories.

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