FXCM Account – Why You Should NOT Use Mini Account
FXCM account types include the Mini, Standard, and Active Trader. While the Mini account can be very appealing to trading newbies, there are some solid reasons why they should avoid it.
FXCM Account Types
Forex Capital Markets, (FXCM, Inc.), offers three main account types to their clients: The Mini, Standard, and Active Trader.
FXCM Account Types - Mini, Standard, Active Trader
One of the key differences between the Mini account comparing to the Standard and Active Trader accounts is the fact that Mini, is a dealing desk.
What is a dealing desk?
Also called market makers, dealing desk brokers literally create a market and forex exchange rates for their clients. Market makers provide both a sell and a buy quote, which implies that they are indifferent to the trader’s decision.
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Clients of dealing desk brokers do not see the real interbank market rates. Since market makers control prices, they are also able to set fixed spreads, which can be a great advantage for your trades.
This shows how a Dealing Desk broker works.
FXCM Account Types - Dealing Desk
After you place a trading order on your platform, FXCM account broker will first try to find an order that is the same size as yours, but in the opposite direction. If you place a buy order, it will be offset by a sell order, and vice versa. FXCM account broker will pass on your trade to its liquidity provider if it can’t find a matching order.
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By doing this, FXCM account broker minimizes risk, as it earns the spread without having to take the opposite side of your trade. However, in the event that there are no matching orders, it will have to take the opposite side of your trade, and since it is a dealing desk, this process is often done by a person and not an algorithm.
Other Characteristics of Mini FXCM Account
While being able to open an account with a mere $50 can be very appealing, you should be aware that there is a catch.
You see, what FXCM is counting on, is getting new leads and hoping that they eventually add more money to their FXCM account.
Another IMPORTANT thing they are counting on, is your fear, greed and ego.
You see, opening a $50 account for a beginner trader is very much like gambling in Las Vegas. You'd think to yourself:
"Well, worse-case scenario, I'll lose 50 bucks. Best-best case scenario, I'll make a fortune."
However when it comes to reality, it's not all that simple. First of all, trading from the convenience of your FXCM account on your phone or lap top, is very much different than your weekend trip to Las Vegas for your friend's bachelor party. If you blow up your account, it is much easier to make another bet, to try and prove the markets wrong. If you win, it can easily get into your head and you'll add money on to your FXCM account (with no real experience). Then, since you are still trading on the Mini account, the Dealing Desk will bate you. Since they make money when you lose, they'll manually make sure your winning trades won't go through, and you end up blowing up your account. Again.
Who Can Try the Mini Account
I always recommend to use at least 2-3 brokers for your investments. Many brokers offer a Mini account to get you on board. So if you are an experienced trader who is just looking to try out a new broker, then you can go ahead and start with the Mini Account to get a real feeling about the broker. While you can also use their demo accounts for this purpose, trading with real money can give you a better idea about the broker.
However, one thing you should always avoid on a Mini account, is day trading. Trading on shorter time-frames make it easier for a Dealing Desk broker to kick you out of your winning trades. Then, even the most experienced traders can get sucked in the ego cycle and blow up their FXCM account.
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