Forex trading is the largest financial industry with a volume of $4 trillion traded daily. This offers traders with numerous opportunities to capitalize their hard earned cash. The time and strategy you employ can always tell the difference between profits and losses when it comes to forex trading. That said, there are different types of live forex trading accounts. These accounts serve the same purpose but use different approaches. They are varied depending on the usage, specification, capital requirements, among other features.
So, what are the different types of forex trading accounts?
1. Forex demo account
This is the entry point for all forex traders. It’s the most recommended type of account to start with when trading. Just like its name suggests, it functions to demonstrate how actual trading happens. The demo account is offered nearly by all brokerage firms and it allows a trader to test their trading strategy for effectiveness, limits and other performance procedures. A trader will feel and experience a virtual matching experience of forex trading without using real money. This means you will freely trade without the risk of losing your funds.
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Advantages of a demo account
- It allows an investor to trader with liberty. You have the freedom to trader since there is no investment risk. Also, you are free to develop trades as per your own plan and strategies.
- A trader gets the opportunity to assess the forex broker without the commitment of real funds. This means you will be able to make the most informed decision on whether to settle for the particular broker offering the account.
- Error tolerance. It’s common to lose forex trading accounts especially when you have low balances in your account. However, a demo account allows a trader to re-start again. All funds are simulated hence no effects on your investments.
- Mostly, these accounts have specific limits on the expiration date as well as the amount of virtual capital. This means a trader will be required to open a new account or start a live one after the expiration period.
- It’s easy to trade wrongly using a demo account. Since is a practice account, it gives excess freedom that can be misused by traders. For instance, a trader can wrongly trade with this account like it’s an actual account. This will means you won’t gain the required skills that are essential for
- A demo account may give impractical market conditions. Actual spreads and fills may be totally different as compared to the practice account.
2. Live forex trading accounts
These types of accounts are offered once a trader has mastered the necessary trading skills. They are divided into four groups and each contains different features and requirements. Depending on your specific needs, every trader will probably fit in any of these accounts. They include:
Just like its name suggests, this forex account allows a trader to invest little capital as low as $500. To gain the right of entry into a huge trade size, you are allowed to use leverage depending on your forex broker. Some brokerage firms provide great leverages that allow you to trade in relation to the funds in your mini account.
- Low capital requirements. This is the main benefit of using a mini trading account since it allows for ease of access. Most traders can easily open this account since it requires low investment to start. In addition, you can take advantage of the leverage method to improve your profits.
- A mini account is a good way of starting real forex trading for beginners. It allows a trader to experience the actual feelings of trading using a live account.
- While a demo account offers you skills to trade using a real account, a mini account provides advanced skills on how to manage a big trading account. To be realistic, a person who masters on managing risks on a small account can do it even better on a bigger one.
- The only drawback with a mini account is low proceeds. While a mini account allows you to start real fore trading, you will make no good proceeds out of it.
These type forex trading accounts are similar to mini as they require little capital investment to start. As a matter of fact, a good number of these accounts have no minimum deposits requirements to start. These accounts contain micro-lots that are equivalent to 1000 unit of the outgoing currency. Depending on the brokerage firm, you can deposit as low as $100 to enter into the live market. This means you can easily manage the risks of trading due to the limited sizes of trades. Also, a trader can reap big by using high levels of leverages to control long-term positions.
Also known as intermediate or classic, this type of account requires a minimum of $500 to $10000 to start. Capital requirements heavily depend on the particular brokerage firms. Mostly, trade positions are limited to mini-lots sizes while in other brokers it can go up to 1 lot. Also, traders are rewarded with huge bonuses on the initial deposits
- A standard account allows for huge deposits. This means you can blend your capital with leverage to make high profits.
- A trader enjoys a variety of additional services from brokerage firms such as bonuses, educational materials and more.
- This account is meant for experienced traders only. The use of large capital investments means high potential for huge losses.
These accounts are suitable for high rollers and require large capital investments. Depending on your broker, you will be required to deposits as higher as $ 100000 to start trading. The main benefit of these accounts is the additional features that include bonuses, analytics travel benefits, professional mentorship, prepaid debit cards and more.
3. Managed forex trading accounts
These accounts allow for capital investment using another manager or trader. The role of a trader is to provide capital while a different agent performs the trades. They are divided into five groups:
- Individual: This is the lowest form of a personal account where a trader’s funds are run by an account manager.
- Pooled: Here, many investors come together and combine their funds through an account manager. Depending on your contributing, profits or losses are shared equally to each member.
- Discretionary: This account requires a trader to give some percentages of the proceeds to the manager. This means you won’t have to pay the account manager in case you incur losses.
- Social trading: Here, an investor selectively keeps track of past successful traders. Effecting the trades can either be automatic or discretionary.
- Automated: Here, a trader gains entry into the API system that is responsible for executing the trades.
Finding the best forex trading accounts will largely depend on the available funds, experience and the way a trader wants to execute their trading activities. For beginners, a demo account is a good way to start. If you want a forex trading account with minimal capital requirements, then mini and micro accounts are the best options for you. For traders looking for bigger potential gains, then standard and premium accounts are the best.