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Types Of Foreign Currency Trading Accounts

June 27, 2009 by  
Filed under Forex Market

If you are a beginner in the world of forex trading, you would have to learn the basics first. This includes knowing the risks involved, reading chart patterns, deciphering relevant news and how you should trade in currencies. You would need to choose a broker and this involves choosing a specific trading account. The account type that you choose will depend on a range of factors such as the amount you have for investment, whether you will be trading on a full or part-time basis and your tolerance risk.

Mini Trading Account

A mini account allows you to make trades with smaller lots. Most mini lots are equal to $10,000 whereas a standard account is normally 10 times the size. Most brokers offer both standard and mini accounts. The mini account is an added attraction to their brokerage for beginners in the market and those who are not willing to trade in full lots due to the costs involved.

Advantages of a Mini Account

• The low risk attached to this type of account is its main advantage. By limiting trades it is possible for new traders to commence trading without using all their funding. This gives them the opportunity to test various strategies without the worry of losing all their money.

• The low initial investment is an attraction as you only require about $500 to open an account and some of the brokerages offer leverage of up to 400 to 1.

• Efficient risk management is imperative in this financial market and this is simple to do with this type of account. If you consider one standard size lot to be too risky for your taste, it is possible for you to buy a few mini lots, thus reducing your risk considerably.

Disadvantages of a Mini Account

• The rewards are lower than in a standard account. If you trade $10,000 your gain for every pip is $1 compared to $10 if you were using a standard account. However, the risks are lower.

Standard Trading Account

This is the most common of the accounts available. You will have access to lots that are worth $100,000 each. This does not mean that you are required to invest that amount of money as the rules related to leverage and margin gives you the option to trade with an amount as low as $1,000.

Advantages of a Standard Account

• Most brokers offer better services and more perks for traders with these accounts, mainly because of the higher initial investment.

• The gains are higher as each pip is worth $10. It is not possible to get these big gains with other account types, unless you trade more than a single standard lot.

Disadvantages of a Standard Account

• The initial balance is generally much higher, being at least $2,000. This may be higher in some brokerages.

• The potential for greater losses is much higher. The same way as your gains will be higher, so will your losses.

The different types of trading accounts also include a micro account, which is smaller than a mini. Not all foreign exchange brokers offer this type of account.

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