The Ultimate Guide to
Pros, Cons and Characteristics of a ‘Mini Account’ in Online Trading
Introduction
A trading account is a basic but compulsory requirement for all online trading activity. The trading account is the depository for trading funds and holds information about a trader’s activity. All funds deposited, whether by wire transfer, credit/debit card or by transfer from a trader’s eWallet, such as PayPal or Skrill, are sent to the trading account. Equally, any returns a trader has been able to accumulate from trading are deposited in the trading account, from where they can be withdrawn.
All traders are not created equal and some brokers have used this knowledge to develop and implement a system of stratification. This means that different account types have been created, each with their own unique characteristics designed to suit the needs of a particular segment of the broker’s client base.
Brokers that offer various account types tend to offer three main types of online trading accounts. These are:
- Mini accounts
- Standard accounts
- VIP or Premium accounts
These accounts can have different labels applied, but the architecture of the accounts follows the classification stated above. Mini accounts are the focus of this article and will be discussed in more depth below.
Characteristics of Mini Accounts
Mini accounts can be described as basic level or entry accounts. They are meant for new traders or those who are entering the world of online trading for the first time. The primary factors that distinguish mini accounts from the other account types are the following:
- Minimum deposit amounts
- Trade size
- Maximum size of investment
- Accessibility to certain features
The capital requirements for mini accounts are usually smaller than those for other account types. It is not unusual to see the minimum deposit amounts for mini accounts to be as low as £100 on some platforms, whereas VIP accounts on the same platform may require a minimum of £20,000. There is a reason for this. Entry level traders are not very skilled at trading and using money management techniques. For their own protection and also to enable them to get acquainted with the market using smaller trade sizes, the brokers set a small entry bar for these traders.
Such low minimum deposit requirements also mean that the trade sizes which can be used for online trading are quite small. Mini accounts will usually allow micro-lot trading (i.e. 0.01 lots), with positions sizes not exceeding a few mini-lots. Mini account holders are usually not allowed to hold Standard lot positions and are also not allowed to execute full CFD (contracts for difference) contracts.
Mini account holders usually gain access to basic features, which can be increased as the trader steps up the account level.
Mini Account Pros
What are the benefits of using a mini account?
- Low entry bar
New traders need to be encouraged, and brokers make this easy for them by introducing a low entry bar for these traders. These accounts do not need to be heavily capitalised.
- They are accessible to a greater number of traders. Most people can find £100 to trade with, but not the VIP-level amounts.
- They are suitable for a learning experience in the real money trading arena. Mini accounts provide a suitable transition from a demo account to real money trading.
Mini Account Cons
The biggest issue with mini accounts is that these accounts are not suitable for traders with some level of experience. Once some experience has been acquired by the trader and the desire to start trading larger positions sets in, the mini account will no longer be suited for such purposes.
In addition, mini accounts lack some of the essential features that may enhance trading outcomes, which available to other traders. It is not unusual to see a Standard or VIP account holder being given access to daily market analyses and very regular updates, but mini account holders are lacking some of these facilities.
Example of the Different Types of Trading Account
The snapshot says it all. The Basic account here (which is the mini account) does not offer technical analysis, does not allow scalping and commissions on CFD trades are higher than the Standard and VIP accounts (Premium and Advanced accounts shown here).
Regulated Brokers that Offer a Mini Account
Traders such as XTB offer a mini account, which they refer to as a Basic Account. Their Basic Account offers fixed spreads, with a minimum spread of 2.0. For their Standard and Pro Accounts, they offer clients floating and market spreads, respectively, with much lower minimum spread values. Guaranteed stop loss is also a feature of the XTB Basic account.
In conclusion, a mini account as an online trading setup is the most appropriate account for those who want to make the transition from demo trading to live account trading, however, once a trader becomes more advanced, they will most likely require a Standard Account to meet their needs.