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Types of Forex Trading Accounts

Aug 27, 2021 07:32

Becoming a Forex trader one need to sign-up with any of the broker for holding a trading account. Opening your first Forex account is one of the biggest steps you can take as a startup trader, so this is definitely not something you are not ready for. Many newbie’s rush into choosing the type of account without understanding it. Others are overwhelmed by the variety of account types available. Both of these approaches are misleading. We here to guide the accounts which are mostly used and how can you harness this accounts to get earn from this.

When choosing a forex account type, you need to carefully consider a variety of factors, including what type of forex trader you want to be, your budget and your trading strategy. Since your account type will affect your performance and profit, it is important that you choose the right account for you.

What is mean by Forex Trading Accounts

Forex Account is an account used to hold and trade foreign currencies. It works just like any other trading account. So, if you want to trade Forex, you usually open an account, deposit money in your home currency and use it to buy and sell currency pairs. If you want to know more about different types of forex accounts and want to get a brief overview of some of them, read on.

Well Known Trading Account Types

There are many different Forex account types available to forex trader who wants to trade in the online foreign exchange market online forex trading market. Different types of users require different types of accounts. There are three main types of trading account types which are Micro, Mini and Standard account.

The Foreign exchange market is a highly leveraged market for speculating on currency valuations. Forex traders can purchase large amounts of currency units using little capital of their own using Forex leverage. Forex Trading Leverage is what makes Forex attractive to many online forex traders – with leverage a forex trader can make more profits or losses because they use less of their capital and borrow the rest. Which type of account is right for you depend on your tolerance for risk, the size of your initial investment, and the amount of time you have to trade on a daily basis.

Micro Accounts

This account is mostly used lower level of account type which offers micro-lots of 1,000 units. These micro accounts are targeted at individuals who do not have a lot of money to spare, but yet are still interested in Forex trading. At this level, a pip has a value of about 10 cents, so the amount of money to be gained even on a volatile market is limited, but so are the potential losses. As these accounts have a low barrier to entry, however, there are restrictions on your trading activity. Most micro accounts limit you to trading nano or micro lots. This helps you to control your risk-levels, making these types of accounts perfect for beginner traders.

Mini Accounts

The most frequent types of funded accounts are mini accounts. Mini accounts are a great means to get used to the execution paradigm of a certain broker and to learn how to trade profitably. Mini accounts are similar to regular trading accounts; the key difference is that on mini accounts the currency is traded in 1/10 lots, that is, 10,000 instead of 100,000. This means that the initial deposits on mini accounts are lower; interestingly, it also brings to broader customization of risk management. The leverage on mini accounts is up to 400:1.

The reverse side of a mini account is a 10-times lower reward compared to that of a standard account: standard account owner receives $10 gain for every pip of positive movement when trading $10,000; whereas the gains of a mini account owner in the same situation will mean earning of just $1.

The majority of forex brokerage firms that offer standard accounts also offer mini accounts. Mini account is a way to attract traders with lower trading experience and smaller capitalization.

Standard Account

The standard Forex account is the most typical and common type of an account. The minimal required balance to start trading on a standard account is usually $2,000; some brokers set it at a level of $5,000-$10,000. Standard trading accounts are recommended primarily to the traders with enough experience on the currency markets.

With this type account a trader has access to standard lots of currency worth $100,000 each. Due to the rules of margin and leverage this means trading a standard lot with factually not $100k, but $1k for a standard lot (the ratio of 1:200). Among the advantages of having a standard account is a broader range of services offered by brokers to standard account owners. As for the potential earnings, the daily gain can amount to $1,000 once a position moves in favor of a trader by 100 pips during the day and one pip is worth $10. However, once a position moves unfavorably for a trader by the same 100 pips during the day, it means same big losses for the trader’s funds, therefore it is strongly recommended that novice traders do not put their capitals at risk and do not open standard accounts shortly after they enter the Forex market.

Commonly there are different types of forex accounts. Even though they known by several names, some of them share the same characteristics and can be grouped under above categories.

We Winstone Prime offers 4 types of account which are Standard($200), Pro($200), Premium($5,000) and Prime ($25,000). So traders can enhance their strategies into this account types.

Other Account Types

Aside from the main three account types, there are some other account types you should become familiar with. These types each have their own specific purpose.

Demo Accounts

Demo accounts allow you to practice your trading. They are virtual accounts loaded with virtual currency. Almost all demo accounts are free, yet they may have a limited usage period. This is normally around 30 days. If you proceed to open a live account with the same broker, however, you may regain access.

Demo accounts are useful for both beginners and experienced traders. Novice traders can use them to get to grips with different trading platforms and to see the effects of their trades in real-time. Experienced traders also use demo accounts to test their trading strategies risk-free.

Swap-free Accounts

Most of the trading account types mentioned above will come with swap fees. This refers to the fee you incur for holding a position overnight. Traders who wish to hold positions open for a long time however, such as swing traders or investors, suffer heavy fees with a regular account. To prevent this, some brokers offer swap-free accounts.

Whilst swap-free accounts can seem appealing, it’s not simply a case of avoiding fees. Swap-free accounts usually come with higher trading costs and various restrictions. As such, unless you do plan on holding positions for a long time, it is normally best to avoid these types of accounts.

One exception to this rule is if you are a Muslim forex trader. Swap-free accounts are also sometimes called Islamic accounts. This is because they are often used by Muslim traders who cannot incur interested fees due to their religious beliefs.

Conclusion

There is New to Forex online Guide that a beginner forex trader can study even before opening a real forex trading account, and to get extra practice in forex trading before opening a live forex trading account – a beginner forex trader should open a practice Forex demo trading practice account with a forex broker – so as to practice placing forex trade transactions before opening a real forex trading account and investing with real money. During the forex training period using the forex demo practice trading account, the beginner forex trader will learn the key factors needed to succeed in forex trading such as; forex education, forex money management, forex trading plan and forex trading systems.

The types of Forex trading strategies used and the skills required for any of these 3 forex trading accounts are essentially the same – those forex trading skills and forex trading strategies required for the Standard Forex Account or Mini Forex Account or Micro Forex Account are the same, the only difference to be adjusted are the forex money management rules for each forex trading account type.

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