Online Forex Trading

Forex trading and the mini account

Any search for information on forex trading will reveal a wide variety of offers from brokerage firms across the globe. The internet, and prevalence of computers mean that these offers are now available to more and more people across all walks of life. Truly, anyone now can trade in forex.

Forex trading

When trading forex, a pip is the minimum fluctuation or smallest increment of price movement. Traditionally, prices in forex are quoted to 4 decimal places. The USD/EUR for example, could be quoted as 1.5108. In this instance, the “8″ shows the pip.

The spread is the difference between the buying and selling price. Therefore, a broker quoting a currency pair with a 5 pip spread could be trading simultaneously at 1.5108 (selling price) and 1.5103 (buying price). The smaller the spread therefore, the more money an investor can make.

In the example above, an investor could buy the USD/EUR at 1.5108, meaning an immediate 5 pip loss. The loss is because they can only sell it immediately for 1.5103. The price has to move by 5pips before the investor starts making money on this forex trade.

One of the benefits of increased competition in the forex markets, is smaller or tighter spreads, as brokerage houses fight to attract investors. This is good news for any forex investors. Those investors evaluating and considering offers from brokerage firms would therefore be advised to look into the typical spread on offer. An example is the Fractional Pip Pricing below.

In 2007, one of the largest forex dealing brokers, Forex Capital Markets LLC, announced that it would begin offering “Fractional Pip Pricing”. This was all in a bid to reduce the bid-ask spreads it was offering investors. For the first time, investors were being offered prices quoted to 5 decimal places. As the example above shows, a 0.5 pip spread is better than a 5 pip spread.

Their micro account targets traders who “prefer the the flexibility and convenience of trading in small (1K, 2K) lots, but are not willing to sacrifice tight spreads or quality execution.” This is the exact market that a lot of retail and investors still learning the forex market will fall into. FXCM will let investors open a forex trading account with as little as $25.

Typically, trades in the forex markets are in very large lots, at hundreds of thousands per trade. This is usually unaffordable to most retail investors, who are forced to leverage their capital to have access to these trades. Offering the microlot sizes that are not offered by the large banks brings forex trading within the reach of more people. Cleverly using technology means that they can do this efficiently, without unduly increasing the spreads for investors.

FXCM seems to have chosen to go the low cost route in delivering their forex brokerage accounts. Instead of telephone and instant messenger support services, the firm has extensive self help sections on their website. They also provide personalised responses to more complicated queries, but only via email. More help is available on the forums available on the same website.

As you can see, irrespective of how deep your pockets are, offers exist for anyone wanting to trade on the forex markets.