There are three types of forex accounts: standard, mini account and managed forex account. Each of them has certain advantages and disadvantages, so the choice of tactics depends solely on your capabilities, the amount of free time for trading, and desires.
standard forex account
Most of the time, a standard trading account is used. Using it, the trader gains access to standard coin batches, the estimated cost of each is approximately $100,000.
To trade on this Forex account, you do not need to have a capital of $100,000. Margin trading rules only require $1,000 to trade in a standard lot.
A standard forex account implies the presence of certain capital to trade full lots. Therefore, its advantages include the fact that brokers provide more services and additional benefits for private traders who trade with them. Another important point is that with a cost of around ten dollars per point, if the market moves in your direction by 100 points, the profit will be $1,000.
The disadvantages of a standard trading account are that forex brokers require that the minimum starting capital is not less than two thousand or even five to ten thousand dollars. However, such a forex account implies, along with the possibility of making a profit of $1,000, and the possibility of incurring losses if the market moves in the opposite direction of yours by 100 points. They can go from $1000. The amount of loss can be very significant, especially for a beginner. Therefore, it is preferable to open such an account for experienced traders with a good starting capital.
The Forex mini account is an account for trading mini lots. Most of the time, the size of the brokers’ mini lots is about $10,000 or a tenth of a standard lot. Most standard account brokers also offer mini accounts for new traders as not everyone has the starting capital to trade full lots.
The advantage of such an account is trading in volumes of $10,000, thanks to which novice traders can start with small amounts, and experienced traders, at the same time, have the opportunity to try new trading strategies by investing small funds.
Another advantage of a mini Forex account is the possibility of opening it with an amount of $100 and a credit leverage of 1 to 400 or more. An important factor when trading mini accounts is the possibility of effective risk management. This is done quite simply. Since opening a position with a standard lot is very risky, the best option would be to use several mini-accounts at the same time to significantly reduce their probability.
Disadvantages of this Forex account include low profits. By having a mini account and trading mini lots on it, a 1 pip price change will generate a profit of only $1, while on a standard account it will be ten dollars. Therefore, it is recommended to use a mini Forex account for novice traders or to try out new trading strategies.
Sometimes forex brokers even offer to open microaccounts to trade $1000 lots, where one pip move brings a ten cent profit, to get familiar with the forex market. The starting capital for such accounts can be as low as $10.
Managed Forex Trading Accounts
A managed forex trading account with your own capital means that other people make trading decisions. At the same time, management of the trading account is carried out by the managing trader in the same way that a stockbroker manages trading accounts when setting profit or risk goals and working to meet them.
There are two types of managed forex accounts.
The first type is pooled funds. In them, the investor invests in a common fund, along with other investors. In this case, the profit is divided proportionally. The classification of these accounts corresponds to the level of risk. If an investor seeks to maximize profits, he invests in a joint account with a higher risk-reward ratio. And, conversely, wanting to earn a more stable income, he must do the opposite.
An individual account is a forex account of the second type. It is about trading while managing a trader who makes decisions for each investor separately.
The advantages of these forex accounts include the professional management of a forex trader. This solution is suitable if you want to diversify your trading portfolio without wasting time observing the behavior of the market.
Sometimes it is not entirely acceptable that the minimum amount of most of these accounts requires an investment of $2,000 for a joint account and $10,000 for an individual account. Another drawback is the presence of commissions, that is, account maintenance fees charged monthly or quarterly.
When the movement of the market in a certain direction is clearly controlled, a managed forex account will not allow enough flexibility to place a trading position. One can only hope from the managing trader and his professionalism. Such accounts are recommended to be opened by those traders who have high enough capital, but do not have enough time to manage it.
Conclusion on forex trading accounts
At the end of the article, I would like to add that regardless of the type of account you choose to trade in, it is recommended that you test your strategy thoroughly first. Very often, brokers provide the opportunity to use demo accounts, avoiding risks and trying all kinds of trading platforms.
However, it is not recommended to use a forex account if you are not completely sure of the effectiveness of your trading strategy. The mass of various account options suggests that the correct choice of one or another significantly affects the final result of the received profit.