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Foreign Currency Exchange Account Types

Foreign Currency Exchange Accounts

Once you have gone through all the basics of foreign currency exchange trading, you need to open an account.  You will have to go through the process of finding a suitable forex broker to open an account.

There are three main types of accounts available.  These are the mini, standard and managed, and each comes with its own advantages and disadvantages.  The account type you choose should be based on your risk tolerance level, the amount of your initial capital investment and the number of hours you have available for trading.

Standard Trading Account

This is the most popular and most common trading account.  It offers you access to standard lot sizes, each worth $100,000.  This does not mean that you require that sum of money in your trading account.  By making use of leverage, you will have the facility to trade standard lots.  This type of account is recommended for traders with experience or those who have sufficient capital to invest.

Advantages

Each pip is worth $10 with a standard account.  If your position moves profitably by 100 pips each day, you will be gaining $1000 per day.  It is not possible to achieve these gains with other types of accounts, unless you are trading more than one lot.

Since you will be required to deposit an amount large enough to allow you to trade a standard lot, you will be offered additional services and facilities with this account.

Disadvantages

The initial capital investment is higher than a mini account and most brokers require at least $2,000.

Your potential for loss is as high as your potential for profit.  The same way you could profit by $1,000 per day, you could also show a massive loss which will lower your capital amount considerably.

Managed Account

This account allows traders to invest an initial amount, but leave the trading decisions up to their broker.  You set your profit goals and risk management, but your account manager has the final say.  You have the choice of two types of managed account.

If you opt for a pooled account, the amount you invest will be put into one account with other investors’ deposits.  The profits made on this account are shared among the group.  The accounts are categorised according to the risk tolerance of the group.  If you are looking for high returns, you will look for an account with a higher risk to reward ratio and the opposite is true if you want a steady income.

If you choose an individual account, your account will be handled by an account manager who focuses on your account only, rather than on a group of investors.

Foreign Currency Exchange Mini Account

This account allows you to trade in smaller lots.  A mini lot is equal to $10,000.  This is a perfect account for those who are new to forex trading.

Advantages

Since you are trading in smaller amounts, it gives you the opportunity to test your strategies without the fear of losing massive amounts of your funds.

The initial investment amount is much lower and you could open an account with $250.

Disadvantages

Although the amount you invest is lower, your reward level is also lower.  For each pip gained, you receive $1.

There are distinct pros and cons to each of these accounts and you have to make the final decision.  Ensure that you read the terms and conditions related to each before you sign up.

 

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