DIFFERENT TYPES OF FOREX TRADING ACCOUNTS
When it comes to choosing a broker, one of most important things you’ll need to consider is the type of account you’re going to use with that broker. There are three general types of trading accounts, namely standard, mini, and managed. Each of them has its own advantages and disadvantages. The right type of account for your will depend on a number of factors. Let’s dig deeper into these accounts.
Standard Trading Accounts
The standard trading account is the most common account, and it can provide you access to standard lots of currency, each worth $100,000.
This doesn’t mean that you have to whip out $100,000 of capital upfront in order to trade. the rules of margin and leverage (usually 50:1 in forex) enable you to trade a standard lot with as little as $2,000.
Since a standard account requires sufficient up-front capital to trade full lots, most brokers provide more services and better benefits for forex traders who have this type of account.
With each pip being worth $10, if a position moves in your favor by 100 pips in just one day, your gain will be $1000. This type of gain cannot be done with any other account type, unless of course more than one standard lot is being traded.
In many cases, brokers call for standard accounts to have a relatively high minimum starting balance, which can range from $5,000 to $10,000 minimums.
Just like you have a chance to gain $1,000 if a position moves in your favor, you could lose the same amount within a 100-pip towards the other way. A loss of this amount could really damage the account and possibly the confidence of a novice trade who only had the minimum amount in his or her amount.
Mini Trading Accounts
A mini trading account is just a trading account that enables forex traders to make trades by using mini or smaller lots. In most brokerage accounts, a mini lot is equal to $10,000, as opposed to a standard account, which trades lots 10-times the size.
A lot of brokers who offer standard accounts will also offer mini accounts as a way to attract clients who are relatively new to forex and are tentative about trading full lots of the capital needed to get started.
Managed Trading Accounts
Managed trading accounts are forex accounts in which the capital belongs to the investor/trader, but the buy and sell decision are made by the professionals. Account managers oversee these accounts just like money managers handle managed stock accounts. The goals are set by the investors.
There are two types of managed account, namely pooled funds and individual accounts.
Pooled funds are where money is put into a mutual fund with other investors’ money. The profits are shared among the investors. These accounts are divided according to the risk tolerance of investors.
Meanwhile, individual accounts are those where the broker handles each account individually, making customized decisions for each individual investor instead of an entire pool of investor.