This article looks at the advantages linked to forex Singapore mini account trading.
In the forex Singapore market a standard lot is the equivalent of 100,000 currency units. Novice traders often feel quite threatened when they see the figures they are dealing with and the risk levels of standard lot trading. This is when you should consider a mini account. Mini lots are the equivalent of 10,000 units. These accounts are ideal for novices to learn how to trade without the high risk level.
Base vs. Counter Currency
You should keep in mind that a currency pair always has a base and a counter currency. In a currency quote for the USD/AUD pair, the US dollar would be the base currency and the Australian dollar the counter currency.
What is a Pip?
A pip is the smallest possible movement in a pair. This is normally the fourth decimal point in a rate quote, other than for the Japanese yen where is based on the second decimal point. For example if your quote reads USD/AUD=1.0300 and that price changes to 1.0301, it has moved by one pip.
How are Pips Valued?
The lot size you are trading will determine the value of your single pip movement. If you are trading standard lots, the pip value would be $10. This is calculated by using the lot unit size which is 100000×0.0001 which gives you the $10 value. If you made use of the same calculation, but you were trading a mini lot, the calculation would be 10000×0.0001 which would provide you with a value of $1 per pip.
You should bear in mind that if you were trading the US dollar and the Japanese yen, the calculation would only be to two decimal places.
Why Should you Trade Forex Singapore Mini Lots?
The main reason for trading mini lots is the lowering of your risk level. You should maintain a 2% trading account balance risk level. To illustrate the risk level differences, we will look at an example where you wish to go long with the USD/JPY and you entered the trade at 97.55. You set a stop-loss at 97.45 which is 10 pips away. If you have a capital balance in your account of $1,000, your predetermined 2% risk level would be $20. In the event that your position is stopped out and if you were trading a mini lot, the amount of your loss would be $10. You would have the opportunity to trade two mini lots if you maintained your 2% risk level. If you applied leverage, you would be able to show a profit.
If you were trading standard lots with the same figures, your 10 pip loss would be equal to R100. This is a huge 10% of your trading capital and your risk level would be far too high for one trade.
Mini lots allow you to use different levels of leverage for the different trades you enter. You have the ability to trade ten different positions for the same value of one standard lot. Your risk level is more controllable and you do not need to make use of leverage on a regular basis. This reduces your risks considerably.