Best Foreign Exchange Accounts

Best Foreign Exchange Accounts

There are three different types of trading accounts that you can get when you sign up with a forex broker.  Each of the accounts has their own benefits and drawbacks that you should be aware of.  You should also consider the lot sizes that each account uses.

The Best Foreign Exchange Standard Accounts

The most common account used by serious traders is the standard trading account.  With this account you are able to trade with standard lot sizes which are each worth $100,000.  However, to open a standard account you generally have to invest $1000 at least.  With this amount of capital you are able to trade standard lots using 100:1 leverage.

The benefits of these accounts include better service as the account requires a large investment.  Most brokers will provide additional services for these accounts and offer better perks.  The potential gain with these accounts is another benefit as each pip is worth $10.  If your position moves in your favour by 10 pips you have made $100.  This level of gain is hard to get with other accounts.

The drawbacks of this account are the potential losses and the capital requirements.  Just as you can gain a lot you can also lose the same amount.  Most forex brokers require a minimum starting balance of at least $2000 but others may require more.  This is an amount of money that most people do not have.

Mini Trading Accounts

When using a mini trading account you are able to trade using mini lots which is equivalent to $10,000.  Many of the forex brokers that offer standard accounts will have mini accounts as well.  These accounts are best for new traders because of the lower capital requirements.

The benefits of these accounts include the low risk, the low capital and the flexibility.  These accounts are low risk because you do not have to use large amounts of leverage when trading.  Mini accounts can be opened with as little as $250 or $500 depending on the broker.  Most of these accounts also come with 400:1 leverage.  Risk management is easily done through the use of these accounts.

The main drawback to this type of account is the low rewards.  As you are working with mini lots you are not able to make the profits you can with standard lots.  Unfortunately, the lower risks of these accounts to create lower profits so you need to weight risk against profit.

Micro Accounts

Some forex brokers do offer micro accounts which work with lot sizes smaller than the mini account.  The micro lot is worth $1000 and a pip movement is only worth 10 cents.  These accounts are mainly used by traders transitioning from demo accounts to live trading and traders who are completely new to the forex market.  A micro account can be opened with as little as $25 but do not include very high leverage amounts.  The profits you can make with these account is severely limited because of the low pip value.

Choosing the right forex account is very important.  You need to think about the amount of capital you can invest and the type of trading you are going to be doing.  Certain accounts work best for certain types of trading.

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