Types Of Accounts In Forex Trading?

Types Of Accounts In Forex Trading?

There are several types of Forex accounts. Forex trading accounts can however be classified into two main categories namely; demo and live accounts. The accounts are mainly classified according to type of funds (i.e. cash or virtual funds) among other factors ranging from lot-size to account management. Below is a discussion of the main types of accounts in Forex trading.

1. Demo account

As the name suggests, this type of account is used for demonstration (demo) purposes. Demo accounts (also known as practice accounts) are used by individuals who wish to learn how to trade. A demo account teaches a newbie trader how to trade without exposing the trader to the risks involved in live trading. A demo account is similar to a live account in every way except one i.e. a demo account uses virtual money.

Trades are however conducted real-time like live account trades. The currency quotations are also live. A demo account allows newbie traders to familiarize themselves with trading platform/software features as well as test their trading strategies. Traders can choose their initial deposit, trading preferences among many other custom options available with live accounts.

Although it’s not a must to open a practice account before opening a live account, it’s highly advisable to do so in an effort to gain the relevant skills and expertise required to execute live trades successfully. For instance, a demo account will help you test your strategy and understand the trading software in advance. These are very important factors to consider for successful trading.

2. Live account

In Forex trading, a live account is simply a Forex trading account with real money. A Forex trader is supposed to open a live account after testing their Forex strategies on a demo account for months (ideally 6-12 months). This should be the case since live accounts are risky accounts for traders who haven’t tested and proven their strategies. There are a number of live accounts classified according to lot size and account management. The main types of live accounts are discussed below:

a. Micro account

A micro account is live account that allows trading in micro-lots i.e. 1,000 units of currency. When trading with a live micro account, 1 pip is equivalent to $0.1. The main aim of opening a micro account is to learn how to trade live with minimum risk. Although a demo account can teach you how to trade effectively, trading with real money offers a more practical experience. Opening a micro account is therefore a great way to start trading live. A typical micro account can be opened with a $50-$100 deposit.

b. Mini account

A mini account is a live account that allows trading in 10,000 units of currency (mini-lots). When trading with a live mini account, 1 pip is equivalent to $1. A mini account is ideal for a trader who wants to increase their gains while trading live without exposing themselves to too much risk. The account is also idea for a trader with some more risk capital since a typical mini account requires a minimum initial deposit of $1,000.

c. Standard account

A standard account is a live account that requires trading with standard lots i.e. 100,000 units of currency. When trading with a live standard account, 1 pip is equivalent to $10. A standard account is ideal for experienced Forex traders who are in a position to take considerable risk while trading live. A typical standard account requires a minimum initial deposit of $10,000.

d. Managed trading account

As the name suggests, this is a special type of live trading account whereby trading is done on behalf of an account holder by a professional trader. Managed trading accounts are available to individuals who would like to profit from Forex trading but don’t have the time and/or expertise to trade live actively. In exchange for managed trading services, account holders pay a commission and/or a fee/s that have been agreed upon for operation of such an account. A managed trading account requires a considerably amount of capital i.e. above $10,000 in most cases. You don’t however need to spend your precious time and effort studying and assessing the Forex market. Your Forex broker assigns a professional trader to trade on your behalf.

Summary

The above information summarizes the main types of Forex trading accounts. It is however important to note that Forex accounts can differ from one broker to another. Although there may be other types of accounts assuming other names, Forex trading accounts revolve around the types of accounts discussed above.

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