Everything you need to know about forex trading accounts: The foreign exchange market is about as old as the emergence of national currencies and has grown into the world’s largest market. Due to the pitches that many people hear about it, individuals considering investing in world currencies consider it an exciting financial opportunity.
But does it mean everyone should open a forex account and start trading? Definitely NO.
There are various things prospects should understand about forex trading, and the types of forex accounts is one of them. If you are planning to invest in the forex market, this post will indepthly discuss everything you need to know about forex trading accounts to help you make an informed decision.
What is a forex trading account, and why do you need it?
Are you new to forex? Well, forex is a portmanteau of the words foreign currency and exchange. As such, forex trading involves buying and selling one currency in exchange for another.
That said, a forex trading account is a client’s personal account opened on a broker’s platform that allows the account holder to trade. Like other financial accounts, forex trading accounts store funds of a trader, and the funds remain the client’s unconditional property.
With a forex trading account, you can trade, get free access to training, participate in bonus promotions and programs, and complete other financial transactions hassle-free. However, beforehand, you will need to choose a reliable broker to open an account with.
Understanding types of forex trading accounts
There are three main types of trading accounts, and each comes with its own benefits and shortcomings. The right account for you depends on a number of factors, including the amount you are willing to invest, your risk tolerance, and the amount of time you have to trade. Below are the various forex trading accounts:
1. Mini trading accounts
Mini trading accounts are usually suited for beginners. The most exciting thing about these accounts is that they can be opened with low capital and allow traders to trade with mini lots, usually $10,000 or one-tenth of a standard account for most brokerage accounts.
Many brokers offer mini accounts so as to accommodate beginner traders who don’t have much to invest or are hesitant to trade full lots. This allows those new to forex trading to test news forex trading strategies and hone their skills before advancing to a standard account.
The biggest shortcoming of a mini account is that it comes with small rewards.
If you’re looking to dabble with new trading strategies, it may be worth noting that some brokers offer micro accounts. These accounts allow you to test new strategies while taking very low risk.
2. Standard trading account
Standard trading accounts are the most common and offer a fantastic way to start trading forex. With this account, you gain access to CFD products and standard lots of currency worth $100,000. However, this doesn’t mean that you have to put down $100,000 of capital to start trading.
Because standard accounts require significant capital to trade full lots, they often come with better perks and more services from the brokers. For instance, trade is conducted courtesy of an improved execution system with no order restrictions.
Notably, while standard accounts present you with an opportunity to make respectable returns, the loss potential is also very high. For this reason, they are recommended for experienced traders with a reliable source of income.
3. Managed trading accounts
As the name suggests, these are forex accounts in which the capital is yours, but decisions regarding buying and selling currencies are not. Precisely, you open an account and let someone manage it and trade on your behalf.
With a managed trading account, you, as a trader, set objectives, and your account manager works to meet those objectives. These accounts are a great option if you want to diversify your portfolio without having to spend the whole day on the screen watching market trends.
There are two strains of managed trading accounts – individual accounts and pooled funds – and minimum investment depends immensely on the type you choose. With pooled funds, the manager will put your money into a mutual fund with that of other traders, and the profits (or loss) will be shared. On the other hand, brokers handle your individual accounts separately.
Endgame: The reality of trading forex differs from the sales pitches most prospects hear. For this reason, it is prudent to take a test drive before making a decision. Thankfully, most brokers offer demo accounts to allow traders to try their hands in forex risk-free. If you have made the decision to invest in the foreign exchange market, hopefully, this post will help you choose the right account.