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TradingCurrencyOnline.com presents...
Pips,
cost to trade and opening a trading account
FOREX Mini Accounts and
full size accounts Overview
If you decide trading currency online might be right
for you, there are basically two types of accounts
to choose from, FOREX mini accounts and full size
100K accounts.
The smaller accounts are the most popular type for
most folks because of the lower capital requirement
needed to get started.
To open an account you will need to choose a broker.
There are many brokers to choose from all offering
different incentives to get your business.
You will notice our broker above
is smiling and for good reason. It does not matter
whether you make money or lose money trading FOREX,
they always make money as we will soon see.
FOREX Mini Accounts --
* Initial deposit to open a FOREX mini account is
often $500 or less.
* When you trade currency, the instrument traded is
called a "LOT."
The size of a mini account lot is 10,000 units of
whatever the base currency is. If the USD is the
base currency, then with a mini account when you buy
or sell one lot, you are actually buying or selling
$10,000.00
 You do not need to "put up" ten thousand
dollars to control one lot on the Foreign Exchange.
Thanks to the beauty of LEVERAGE, some brokers will
require you only pledge a mere $500 as margin to
control a $10,000 lot of currency.
Although you are only "committing" $500 in the case
of a FOREX mini account, you have the opportunity to
make profit on the value of the entire lot, not just
the $500.
It is similar to buying a house for $100,000,
putting down $20,000 and financing $80,000.
A short time after your purchase the house
appreciates 20% and is now worth $120,000.
You sell the house and pay off your $80,000 loan
which leaves your original $20K plus a $20K profit.
In this case you've used leverage to make a 100%
return on your original investment!
Of course this is a highly simplified example not
taking into account taxes, fees and so on but the
point is the mechanism called leverage used to
create wealth in real estate is available to traders
in the FOREX.
BEWARE!! Leverage can work against you and leave you
BROKE just as fast which is why it is important
educate yourself thoroughly before you start trading
currency online.
Every tick or "PIP" in price when you are trading
with a FOREX mini account either ADDS one US Dollar
to your account or SUBTRACTS one US Dollar from your
account.
A PIP is the smallest movement price can make.
For example:
1.1220
1.1219
This price just moved one PIP.
With a FOREX mini acount, one PIP = 1 USD.
Full Size 100K Accounts
A full size account is the same as FOREX mini
accounts except you times everything by ten.
* A lot is a block of $100,000
* Each PIP either ADDS $10 to your account or
SUBTRACTS $10 from your account.
* Cost per trade is $30-$50 which is why your broker
is smiling above.
* The cost to open one is not ten times more but
usually many times more -- check with different
brokers for initial deposit requirements.
Full size accounts are best left to experienced
traders.
FOREX mini accounts are more practical for beginning
traders and if you are feeling really sure about a
trade and want to risk more for the opportunity to
make more, just buy or sell more lots, for example
trading 10 lots with a mini account is the
equivalent to trading one lot with a full size
account.
Remember however that the more lots you trade the
more margin will be required.
Desirable Broker Qualities
Some of the qualities you may want in a broker are:
* Stability / Reputation
* Minimal slippage - Slippage means you make an
order to enter at 1.1245 and by the time the broker
gets around to filling the order the market price
has moved to 1.1253.
That is an 8 PIP difference!!! If your order was to
BUY, you have already lost out on $8.
It is important you get a broker with minimal
slippage reputation.
* Easy to use trade station
* Competitive spread (your cost to trade)
Check out the different brokers listed to the right
and see what each has to
offer.
The COST to Trade -
Often you will see FOREX brokers advertise NO
COMMISSIONS.
This can be misleading because while there may be no
traditional commissions, brokers surely do make
money which is fair obviously since they are
providing a important service to FOREX traders.
With FOREX the cost to trade is in the SPREAD.
Spreads range from 2 to 5 pips for the major
currency pairs and more for "CROSS PAIRS."
A cross pair is a currency pair that does not have
the USD in it, like CHF/JPY for example.
 This
means that every time you trade, you
pay the broker between $2 to $5 when you trade with
a FOREX mini account and TEN times more with the
full size account.
This is why when you enter a trade, the spread is
deducted from your account which is why your
position instantly shows a 3 to 5 pip loss.
This means with each trade, you have to
"make back" the spread before you can be in profit.
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