Forex account types – What are they and why is the difference so important?

Featured article by Dina, Independent Technology Author

When considering which Forex account type you want to start with, there are many factors you should include. What type of trader are you? Can you tolerate risk? What’s your initial investment size, and how much time can you dedicate to trading daily, without distractions. We will give a clear illustration of common Forex account types and their pros and cons, so you can weigh out what would be the right thing for you. Let’s begin.

Main Forex Account Types

If you are a complete beginner in Forex, you will probably go with a mini account because it reduces the maximum lot size to $10000. If you don’t have lots of money to invest, this is great because you can still participate and be a Forex trader, and you can advance from here to a profitable one if you learn how to manage this one the right way. You will test out your learning skills, patience, and so much more by starting with a mini account.

If you have experience with trading, a managed account can be worth the additional fees. Bear in mind the standard forex account is most popular because lots can go up to $100,000. Plus, their leverage is 100:1. Naturally, you can feel pressured when you read all this, but reconsider what type of trader you might be, and go with what suits you now. You can always upgrade once you are more confident and skillful. Let’s explain the Forex accounts, as mentioned above, a bit better.

Mini Trading Accounts

Forex traders having accounts use mini when they want to make a transaction. Usually, a mini lot’s worth is one-tenth of what the standard account gives (10000 dollars). If you are entirely new to Forex trading, the best advice is to start with a mini trading account, so you do not stress too much before you even begin.

Pros and Cons of Mini Accounts

Your risk is much lower, which is a plus since you have lots to learn about trading. Since the risk is really low, you can experiment, and even if something goes wrong, you won’t suffer too much damage. Even experienced traders like mini accounts when trying out new strategies because they know they aren’t risking too much. It’s flexible, but its flaw can be that the reward is low since you are not risking too much. To put it into perspective, trading with a $10000 lot, you can make $1 per pip movement.

Standard Accounts

We briefly mentioned the standard lot’s worth is $100,000. What people get wrong is you do not have to invest the whole amount to trade. You need a thousand dollars to be in the margin account if you want to trade only one standard lot.

Pros and Cons

The client’s service is excellent for standard account users because you need to have the up-front capital to trade full slots. Every pip is worth 10 dollars – you can earn up to 1000 dollars if the position moves 100 pips daily. While you can make lots of money, the major flaw is you need to start with a minimum of 2000 dollars or even five. This means you can earn a lot but lose a lot and if the pip starts moving against you. It’s one of the reasons why this account is more suitable for experienced traders.

Managed trading accounts

In this case, capital is yours, but you don’t get to decide when you’re buying or selling. What you do as a trader is setting your profit goal and, most importantly, check risk management. Everything else is handled by someone else.

There are individual accounts and pool funds. With Pool funds, your money is in a mutual fund gathered from other investors, and you share any profits. Individual trading accounts are where a broker will make decisions for the investor.

Pros and Cons of Managed Trading Accounts

A managed account is excellent if you don’t have much time on your hands, but you want to trade. The bad side is the high requirement for having a managed account (minimum $2000), and there are lots of monthly fees. You don’t have much flexibility as well. This account is considered for high-capital investors since they lack time but have money.