Forex Basics-Setting up Online Trading Account
Foreign exchange, also known as Forex, involves the buying and selling of the world’s major currencies. It’s considered the most liquid market in the world and the largest by dollar value. It’s the most popular form of investment because it allows average traders to compete with large institutions such as banks and hedge funds. The only thing you need is to have is a forex trading account.
Types of Online Trading Accounts
There are a variety of online trading accounts that a trader can register and start trading Forex. The most popular online accounts include the standard, mini, and managed accounts. Each of these online accounts has its own advantages and disadvantages. So, it’s important to learn about the available online trading accounts before you start trading.
These accounts have different features, and the one that you choose to trade with depends on the size of the initial investment, your tolerance for risk and the amount of time you can spare daily. When starting, it’s paramount to choose an account that matches your knowledge, skill, and experience.
Standard Online Trading Accounts
These are the most common online trading accounts. The standard trading account gives the trader access to currency worth $100,000. However, it doesn’t mean that you have to invest $100,000 to operate a standard account. According to the rules of margin and leverage, you only need to have $1,000 to start trading.
Many traders choose a standard trading account because it has a high gain potential. For instance, when you invest $10 and the position moves by 100 pips, you stand to gain at least $1,000. You can’t get such a profit with any other trading account. Besides, the standard account comes with mouthwatering perks for individual investors.
On the other side of the coin, standard trading accounts have a huge capital requirement. Many brokers will need you to have at least $2,000 minimum balance before you can trade. Others even ask for $5,000 to $10,000 as a minimum balance. Besides huge capital requirements, standard accounts also have a high potential of making a loss. Just the way you can easily make $1,000 of the position moves with you, you can also lose $1,000 if it moves against you. The standard account is best suited for experienced and well-funded traders.
Mini Trading Accounts
While standard accounts allow traders to trade full lots, mini trading accounts allow traders to transact using mini lots. In many trading platforms, a mini lot is equivalent to $10,000, usually one-tenth of a standard account. Many platforms offering standard accounts will also offer mini trading accounts. Mini trading accounts are best suited for new traders who are hesitant to trade with standard accounts.
One major advantage of mini trading accounts is that they are low-risk. Newbies and inexperienced traders can trade with mini accounts safely because they only have to trade with 10,000 increments. Mini trading accounts also provide an excellent platform for traders to test new trading strategies without risking a lot of money. Most of the mini accounts have a low capital requirement. You can open a mini trading account with as little as $250 and start trading. The only major disadvantage of mini trading accounts is that they have low returns.
Managed Trading Accounts
These are Forex accounts where you invest the money and let someone else make the decisions about buying and selling. In a managed trading account, you invest the money, set your objectives, and let the account manager work to meet them. Either pooled funds or individual funds can fund managed trading accounts.
The major advantage of managed trading accounts is that you have a professional Forex broker to run the account. The account is best suited for investors with busy schedules, yet they want to make some money trading Forex.
Most of the managed accounts have a huge capital requirement. Some platforms will need you to have a minimum of $10,000, especially if you are operating an individual account.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.