By Sean Hyman Remember: In the Forex market, you define your leverage by the type of “lots” you trade, so the type of account you trade determines whether you’re buying standard lots so the type of account you choose is very important.

I see so many novice traders try to open trading accounts with lot sizes that are way too large for their balance. And if they err to one side, they usually err to the aggressive side.

Chances are your broker won’t tell you which account you should open. Most industry market makers will allow you to open up any type of account, whether it will benefit you or not.

However, here are some general guidelines that I’ve found will help you to open up your first trading account. In my opinion, you should only open a “standard account” if you plant to fund it with around US$50,000. If you’re using your standard account, you should only trade one standard lot for every US$50,000. (As I said above, one standard lot controls 100,000 units of currency).

In my opinion, traders should have at least US$5,000 to open a mini account. Of course, you can trade with less. But if you’re planning to trade often, I suggest a US$5,000 mini account. Then only trade 1 mini lot per US$5,000 in your account.

Following the rules above will actually solve three problems at once:

1. It gets you into the proper account type from the beginning.
2. It ensures your account is well capitalized.
3. And it ensures you’re trading with the right amount of lots for your account balance.

All three of those are huge components of risk management, which I would say is just as important as picking the next winning trade – because if you do pick winners, but fail to control your risks properly, then you won’t be trading very long.

Happy Trading!
Sean Hyman, aka Professor FX