Mini CFD trading is a great tool for retail investors with limited funds to trade the foreign exchange and Contracts For Difference market without opening a full fledged CFD account. A CFD mini account requires a significantly smaller capital, sometimes as little as $250 (depending on your chosen platform), compared to a regular CFD account which typically requires $2,500 or more.
A beginning CFD trader is encouraged to open a CFD mini account even if he has sufficient capital to open a normal account. Why? Because mini CFD trading is a great way for a CFD beginner to learn the trade as it allows for lesser losses. Since each contract size in a CFD mini account is worth only 1/10th the size of a standard lot, 1 pip worth $10 on a standard account will thus be worth $1 on a CFD mini account. A 20 pip stop loss that will normally cost you $200 on a regular account will thus only cost you $20 on a Contracts For Difference mini account.
CFD mini accounts also provide better leverage than a regular account. While you need $1,000 to control one lot of $100,000 on a regular account, you get a leverage of 200:1 on a CFD mini account. This means that to control one lot of $10,000 on a CFD mini account will only set you back $50.
A CFD mini account with a reputable CFD broker should give you all the benefits of a normal account, such as charting software, point and click trading platform and other trading resources. Because traders are not limited in trading volumes, mini CFD trading is a great way to rack up multiple trades quickly and easily, testing their trading strategy on a live platform and subject to real emotions of CFD trading. Even with prior success with virtual or paper trading, nothing prepares you for live trading until you actually do it with real money.
To be realistic, you shouldn’t expect to earn a fortune with a CFD mini account due to the small contract size. However, it is a good way to build up your confidence and to provide validation of your trading strategy as what is more important at this stage is your percentage gains rather than the dollar value of your profits. It is also a great way to cultivate discipline, by far the most important behavior for every successful trader. Once you see your CFD mini account gradually increasing, then you know you’re ready for the higher stakes of big-time trading.
Mini CFD trading is also a great way to diversify your investment portfolio. For example, if you have a $20,000 investment kitty, you might not want to put all your eggs in one basket in CFD. Instead you might want to have a $5,000 CFD mini account, $10,000 in stocks, and $5,000 in bonds.
CFD trading is a high risk high rewards activity. But if you’re a beginning CFD trader, it’s wise to practice caution and plan your path carefully. Make mini CFD trading the next step after paper trading in your journey to be a CFD star trader.
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