Trading forex comes with substantial risk and the majority of new traders end up losing money. Sure, some will be able to consistently generate impressive returns while even fewer will make a lot of money.
So, how can anyone curious about the world of trading give it a try without risking a lot of capital? The answer is through a cent account.
What Is A Cent Account?
Most reputable forex brokers offer a special type of account designed for beginners called a cent account that is also known as a micro account. Simply put, a cent account is a live forex account where traders are able to trade very small amounts. Cent accounts have been around since the early 2000s and have been perfected over the years to give new traders a fantastic trading experience.
Minimum deposit requirements vary by broker but it wouldn’t be unusual to find a forex provider with a minimal initial deposit of 10 pounds or the equivalent in euros or U.S. dollars.
A cent account offers traders the exact same access to the global foreign exchange market as a regular account. In other words, a trader on a cent account could find themselves on the opposite side of a trade with the Bank of England, a multinational corporate giant, one of the world’s largest hedge funds, or a trader anywhere in the world with a similar cent account.
Cent accounts might come with limited benefits but they are designed to protect the trader. Most notably, a cent account might offer a trader leverage of up to 30 times their deposit. What this means is a £30 deposit gives the new trader access to trade with £900. Naturally, it is in no one’s interest to give new traders access to much more capital so early in their trading career.
By contrast, standard forex accounts could offer leverage of 500 times or even 1,000. A typical account size of say £10,000 means a trader has access to trade with £5 million or even £10 million.
It should go without saying that the main benefit of trading with a cent account is the extraordinary low amount of risk. Trading forex can be a lucrative venture but the high level of failure rate makes it clear this isn’t for everyone.
Why not give it a try for just £30 or maybe even £10?
By contrast, the upside potential is limitless. The foreign exchange market sees nearly £5 trillion worth of daily trading action. The forex market operates 24 hours a day so there is always an opportunity day or night to make money.
As a general tip, new traders should find a cent broker that helps protect their capital through advanced risk management software. Since cent brokers offer margin, a trader can in theory lose more money than they put in.
For example, if a country catches the global investment community off guard with a large GDP miss versus expectations, its currency could sell-off hard and fast. If a trader is taking advantage of leverage and finds themselves on the wrong side of the trade, the position could fall by more than the account size.
But responsible brokers will take steps to protect their customers from unnecessary additional losses through advanced software and automated risk management systems. Some brokers might even offer new traders negative balance protection that eliminates all worries associated with losing more than the initial deposit.
Scale Your Strategy
Cent accounts allow a trader to test, refine, re-test, and then execute on their strategy with minimal downside potential. The beauty of the forex market is most trading strategies can be scaled with size.
Consider for example a trader that opened a cent account with a deposit of £20 and has access to 30 times leverage. The trader has access to £600 and spent months watching the GBPUSD pair and testing a strategy.
Suppose the trader goes on to generate a very decent 10% return a month and is confident in their strategy. For many, bringing home £60 isn’t that great but it the first step as part of a long journey towards financial freedom.
Backed with an extremely confident outlook, a trader is ready to move to a standard forex account that increases in size as each month passes. Two years later, instead of a mere £20 account size, the trader is now able to deposit £5,000 and take advantage of a margin rate of 500 times.
The days of trial running a strategy with £600 have now been replaced with £2.5 million.
If the trader is able to equally execute on their strategy along with a strict and disciplined risk management philosophy, there is no reason the same 10% monthly return can’t be achieved. Instead of profiting £60 a month, the trader is now generating a monthly return of £250,000.
Is this possible? Of course, it is — but only for the most dedicated traders with the right attitude and a winning strategy.
Conclusion: Take Advantage Of The Unique Opportunity
The forex market is the only one of its kind that offers new traders the ability to test their skills with such a low deposit. Stockbrokers won’t even dream of letting someone open a new account with £30 or even less.
Nowhere else in the trading universe can someone have an opportunity at obtaining financial freedom than through a cent account that acts as a stepping stone to a professional account.
And the best part is forex brokers are much more willing to extend generous leverage to their traders the likes of which will never exist in stocks.