Before forex trading went retail, it was only being traded by the banks and the "big dogs". It was something that was reserved mostly for the ultra wealthy and large corporations. The standard starting size for trades was 100,000 Dollars.
Most traders don't have that kind of starting cash so forex brokers came up with several ways to make the markets more accessible for the average trader. The first thing they did was allow traders to use forex leverage or trade on margin. The amount of leverage that each broker offers varies, but the bottom line is that you didn't need 100k to start trading any longer, now you could use much less money to open and control large trades. The second and much more impacting thing that forex brokers did to lower the entry bar was they created forex mini accounts. A forex mini account allowed traders to trade in lots of 10k rather than 100k. This really worked to help bring traders into the markets and get them trading.
After a few years, forex brokers discovered that there was still a part of the market that was untapped. Most brokers were allowing traders to open accounts with around $300 and make trades.
Traders opening up 10k trades on leverage with $300 were taking a lot of risks and getting beat up by the markets quite easily. That was a losing prospect for brokers and for traders. To combat this problem brokers came up with micro forex trading accounts. As you might have guessed, micro accounts allow traders to open trades in lots of 1k. This makes for a super low bar of entry and allows for traders to still open accounts with low starting capital, but gives them the added advantage of being able to use less leverage and diversify more.
A few suggestions for survival
Although you can open an account with $50 with some brokers, you shouldn't consider starting with less than $500. To go beyond that, I would consider it ok to start with $500, but I would recommend starting with $1000. It is dangerous to start trading forex while being under-capitalized, so the more the better.
In the beginning, stick to one trade at a time. It's easy to fall into the trap of looking for opportunities everywhere when trading. In fact, so much so, that you start to worry about what trading opportunities you might be missing while waiting for your existing trade to profit. You should be looking for opportunities, but only when you can afford to take them.
Set stops. This might seem like silly advice, but you do need to set stops. They don't have to be tight stops, they need to be set based on a reasonable evaluation of your trade's potential. The basic rule of thumb for setting stops is to set them at a price that will be reached if you are definitely wrong about your trade.
Keep a forex trading journal It's easy to look back in hindsight and give yourself a reason for failure or a mental rewrite of the reason that you took a trade. Keeping a forex trading journal will help stay honest about why you took trades and figure out patterns for losing and winning.
In a nutshell, this is it. Using a micro forex trading account is a great way to start trading forex. Forex trading will still be a risky venture, but much easier to manage at that level.
If you are interested in opening a micro forex account, please see this list of forex brokers. If you ever have any questions, feel free to email me at forextrading.guide@about.com.
