Depending on funding requirements, trading styles, systems, specifications and a host of other factors, forex trading accounts vary across different brokerages. From the perspective of an investor, an account reflects a user’s risk tolerance limits, initial investment size, profession, and even cultural affiliations. Based on that, the following are some of the broad categories associated with forex trade accounts.
Demo vs. Live Trading Accounts
Forex brokers provide the benefit of “demo trading accounts” to both new and experienced traders. These accounts simulate live trading conditions, without the need to commit actual trader funds. Many brokers provide a fixed amount of virtual funds, to help traders begin trading in a safe environment. For new traders, this is an opportunity to get accustomed to their trade terminals, indicators, and market conditions. Experienced traders use these accounts for the development and testing of new strategies, before applying them in the live markets.
A “live trading account” is one in which the trader will need to deposit their own money and then speculate using these funds on the actual markets. Online forex brokerages today allow initial deposits of as low as $500, to start trading. When choosing a forex broker, it is essential to check how they price their spreads, which affects the overall revenue generation. Two types of accounts exist here: fixed and variable spread accounts.
Fixed Spread Account
A fixed spread account means that the difference between the buy and sell price remains constant in all market conditions. It usually falls within the range of the variable spread, ranging from 1.5 to 3 pips. Fixed spreads protect traders from unpredictable variables, which could lead to an increase in transaction costs in volatile markets. Regardless of market liquidity, fixed spreads are consistent and predictable.
Variable Spread Account
These are mostly suited to scalpers as this account type mirrors the current market condition. The difference between the buy and sell price, i.e., the spread, widens during periods of high market liquidity, but in most cases, the spread is lower than the fixed spread account. The only risk associated with this account he the invariance of the spread associated with major events. Based on lot sizes and initial deposit requirements, these accounts can be further sub-divided into standard, premium and VIP accounts. Different brokers might use different names for these accounts.
Standard Account: Mini and Micro Lots
Two types of lot sizes can be seen here, micro and mini lots. Micro account holders are usually new traders, who have the option to open accounts with a minimum deposit. The lot size is 1 micro lot or 1,000 units of the base currency. Mini account holders have a larger initial deposit requirement, possibly varying from $500 to $1,000. One mini lot consists of 10K units of the base currency.
Premium accounts are more suitable for seasoned traders, who can make larger deposits in their account. The lot size is usually 100K units of the base currency. Spreads are comparatively lower than that for standard accounts.
These accounts are opted for by highly experienced traders. Minimum deposit sizes can go up to $50,000. These accounts are also known to offer the tightest spreads, along with added functionalities like premium indicators, expert advisors and additional analytics.
Many forex brokerages provide Islamic swap-free accounts, which follow the Islamic norms of monetary transactions. According to Islam, any business transaction, where interest payment is involved, is strictly forbidden. Therefore, in these accounts, no swap or roll-over interest is charged on positions held overnight, providing an opportunity for Islamic traders to operate in the market.
A forex trading account should match your profit goals and trading style. So, do your research before making a final decision.