A relatively new development in the spot foreign exchange market is something called the protected account, which allows new traders to use a low-risk introductory account where the broker will cover your losses for the period of 14 days. This is a neat arrangement if you want to start a live forex account yet do not want to lose alot of money due to the volatile nature of trading. It acts as a bridge between demo trading and live trading.

The funding of this protected account is different than it is for a normal live trading account. Your intial deposit works as a non-refundable fee as opposed to a regular deposit, and you are given the right to trade at 100:1 leverage and up to 100x your initial deposit. (Read about it here.) This is a benefit for the trader, because they are allowed to trade for 14 days and keep any of the profits that they make (without any cap), and they are not responsible for any losses. Even though it might seem like a broker would go bankrupt by offering this, it is truly beneficial for the broker because that trader will likely open a regular live trading account and become a lifetime customer.

When you have been a retail currency trader as long as I have, you begin to develop a kind of "intuition" for identifying when a broker or some other forex-related party is legitimate or they are just after your money. So naturally, when I heard the words "zero risk" associated with a forex trading account, alarms started going off in my head. If it sounds too good to be true, especially when it comes to anything with this still largely unregulated market, then it probably is.

But the protected forex account is a pretty intelligent design because it creates a win-win situation for the trader and the broker, and it allows a trader using a demo account to slowly ease into trading real money without the fear of losing their investment. A protected forex account will allow a new trader to fund their mini trading account with a small amount of capital (less than $500), and for a two week period after they open the account the broker will cover any losses that they sustain. If the account turns out to be profitable over those two weeks, the trader gets to keep the profits and the normal trading rules are applied.

This is a good setup for a beginner forex trader because they can experience the feeling of trading real money without worrying about whether they will lose their investment. This is also a good setup for the broker. If the trader turns out to be really bad and they lose a lot of money in their trading account, the broker will lose around $300 or so. But if the trader turns out to be successful, then they have moved the trader from a demo account to a live account in a comfortable atmosphere and they now have a new client. Because the broker makes money on the spread, the lifetime value of a trader in terms of money that is earned can be in the tens of thousands of dollars.

>>> Read 'The Key to Stress-Free Forex Trading'