Now we are almost drawing towards the close of our forex trading basics. You already know the ways of trading. the various technical charts to follow, the economic news to take cognizance of and interpretation of the many trends and swings in the market, but all this will be of no use without a proper trading account. So how do you go about opening an account for forex trading? What are the key factors to take care of and how do you go about deciding on the fee structures of various brokerages? Here below, are some basics that you must always keep in mind while deciding on opening a forex trading account.

However, before you read the rest of this article, I have to repeat one of the important points that I always repeat. Before you think about opening a live account. ask yourself whether you are really ready for live trading or not. Be honest with yourself and give a correct answer to this question. If the answer is yes, then ask yourself the second question. Why do you think you are really ready for live trading? When you say you are ready for live trading, is it because you have already mastered your trading system AND you have been able to make profit consistently at least for 6 consecutive months on your demo account ?

If you answered yes honestly, then you can open a live account. But not a big and professional live account. Your first live account is indeed the second stage of your demo trading. It has to be as small as possible. You open it not for the purpose of making money like a professional forex trader. But just to make sure that you are able to repeat your demo trading success with your live account too. You should be able to make money with your first live account (which has the smallest possible balance), at least for 6 consecutive months. If so, add money to your account and make it a little bigger (although I believe you should not do it and you should keep on trading with the same small account to grow it).

What I explained in the last two paragraphs is really critical. Dont rush to open a live account when you are not ready for it yet. You will lose. I guarantee it. You are hearing this from someone who has not planned to make any money out of your forex trading accounts, your gains and losses. So take it serious.

I have already written some articles about this topic that you really have to read, if you are serious to become a professional forex trader:

Lets assume that some of you are really ready for live trading. Here is what you have to know about

Standard Forex Trading Accounts

This is the most common format of accounts used by forex traders. The main benefit of a standard trading account is that it gives its user access to a standard currency lots. Each lot is 100,000 unit, but it doesnt mean that a trader has to have that much of money in his or her forex account. You are already aware of the rules of leverage and margin (see this also), and that lets you trade a standard lot for investment as low as $1000 also in case your forex trading account leverage is 100:1.

The key benefits of opening a Standard Forex Trading Account include:

1. Most brokers offer better perks for this type of account holders
2. The initial upfront amount required to begin trading is preferred by many brokers
3. Helps in evaluating services offered by a broker
4. Higher gain potential through effective leveraging of limited investment via this kind of account
5. Initial investment is not very huge, and you do not need deep pockets to open this type of forex trading account
6. The upfront basic investment also helps you win the broker’s confidence while taking significantly higher leverage (of course you dont need it)

However like every coin, despite the obvious advantages, there are some demerits of opening a Standard Trading Account:

1. Initial capital requirement to open this kind of an account is the biggest roadblock
2. More often than not brokers look at a minimum balance of $2000 and sometimes even as high as $10,000
3. The associated risks with this kind of accounts make brokers somewhat risk averse, and they look for strong monetary backing and guarantee before opening this type of account for their clients.

4. Well, it goes without saying that given the high degree of leverage possible. the loss potential of a standard trading account holder is equally magnified
5. If a trade goes bad it can be a major setback for someone who is new to the market and has limited wherewithal to invest
6. It is more suitable option for a trading veteran compared to a novice in forex trading

Mini Forex Trading Accounts

Another commonly used form of account by forex traders is a Mini Trading Account. As the name itself suggests, it is a type of forex account that allows its holders to trade in mini lots of currency. Most brokerage firms offer mini lots worth as little as $10,000 and suitable for traders who do not want to commit huge amount of money in the forex market or those who are not yet confident about investing a big sum. Many brokerage firms also use this kind of accounts to woo new and small scale investors in forex trade. The next pit-stop is then a point by point analysis of this kind of account and weighing the merits Vs the demerits. Here is a look at the positives first:

1. New traders can use this variant of account for initial investments in the forex market
2. The low capital involved will also help the traders to take some risk and try out new strategies in the forex market
3. The low capital requirement is also big thumbs up. Given the leverage margins, a mini account holder can start of accounts with as little capital investment as $250-500. They can even risk a huge leverage ratio, at times as high as 400:1 if they are confident about the direction and trend .
4. The mini lots also guarantee a much larger flexibility as the money involved is relatively lower
5. The lower money involved also minimizes the risk factor associated with these types of trading accounts
6. A look now at the negatives in opening Mini Trading Accounts:
7. The reward potential is limited compared to a standard account as an initial investment is also relatively much lower
8. If you are looking at earnings big returns, this is not an ideal choice

Apart from these mini forex trading accounts, many brokers also give the option of opening ‘Micro accounts’ to new investors. These are smaller than the minis and sometimes available only through online broking. The lot sizes are as small as $1,000 lots and sometimes the pip movement could be worth as little as 10 cents per point compared to $10 per movement in Standard Trading Account.

Something that you have to keep in your mind is that true and real ECN/STP brokers cannot offer mini accounts, simply because true and real liquidity providers dont support mini lot orders. It means even if the broker is a true real ECN/STP broker, the mini accounts it offers are dealing desk based, because they cannot route the mini orders into any liquidity provider. Read this: 6 Ways Forex Brokers Cheat You

Managed Trading Account

Another type of account held by forex traders is called the Managed trading accounts. Essentially here the account holder only puts in the money, the trade is executed by professionals who have been dealing with currency trade for years together. The investor gives a set goal to the professionals, and it is up to the professional’s discretion on how they look towards realizing that target. Read this too: I Can Manage Your Funds And Accounts

Managed Accounts can be broadly divided into two types:

Pooled Funds: The highlight is these type of accounts are divided as per the investor’s risk appetite. A forex trader who is targeting stable returns would want his or her money parked in relatively safer funds with low-risk factor. The investor needs to be careful about understanding the fund’s prospectus and the associated conditions before putting their money in these funds.

Individual Accounts: In this case each account is handled separately with decisions and strategies tailor-made to confirm to an investor’s specific requirement and individual risk and investment targets.

So what’s the benefit of having a ‘managed trading account’?

1. Perhaps the biggest help is getting professional guidance in investing your money in proper avenues with the appropriate strategy and risk outlook
2. The experience of these professional money managers ensures that you get the maximum from your investment
3. You do not have to spend the whole day looking after your investment
4. It is an ideal option for all those who do not have a lot of time to individually manage their investments

You will have all the above benefits only when your account is managed by a really professional trader, otherwise you will gain nothing but loss.

A managed account is not without any negatives:

1. First and foremost, your money is not in your control
2. Just like you would like to bask in the glory of returns brought in by the smart strategies employed by a professional, you also need to be ready for the associated risk and possible loss due to any potential miscalculation
3. The capital requirement for opening this kind of account is significantly larger. A pooled account needs minimum $2000 while individual account holders need to make an initial deposit of $10,000

Swap Free Forex Trading Accounts

Some forex traders dont like to pay and receive swap for some reasons. It is an opportunity for forex brokers to offer a type of account called Swap Free. It can be a standard or mini swap free account. Again here the point is true ECN/STP brokers cannot offer swap free accounts, because it is not the broker that charges the swap. It is the liquidity provider. A true ECN /STP broker has no control on swap. But it is only a market maker broker that can control everything, including the spread and swap. It means all the swap free accounts offered by different brokers are dealing desk accounts. I dont know if you still like to have a swap free account now that you know that you will be trading in the brokers pockets, not with the real currency market.

That was all about the different types of forex trading accounts. Opening the right account often holds the key to a successful trade outlook in the forex market. Always check things out yourself. No matter what your broker says, verify things at your end too. And whatever account type you decide on, remember that your confidence is primary. Jump in only when you are 100% sure.

Good luck

Don’t Miss Our New Articles!

Be the first who receives our most recent articles:

Learn more: