Opening a forex account has never been easier. Thanks to the advent of online trading, the only resources needed to open a trading account is a small amount of money and an internet connection. Nevertheless, besides a large number of online brokers to choose from, different types of forex accounts offer a wide variety of features and options. These options include demo accounts, mini accounts, micro accounts, standard accounts and premium accounts.
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Forex Trading Accounts
In order to attract more customers and to give small traders a chance to test their skills at trading the forex market, a large number of online brokerage firms offer demo or practice accounts. Offered free of charge in most cases, demo accounts can usually be opened with minimal effort and offer many of the online features of a live forex account, except trading with real money.
Trading in a demo account can offer a novice trader ample opportunity to test their skills in reading the market, and they provide invaluable experience without the need to commit real funds to a trading account. A demo account can also have technical analysis and other market diagnostic features that offer a new trader excellent educational material. Make sure that the broker you open a demo with is regulated in your jurisdiction, e.g. the NFA for U.S. traders, in case you wish to deposit funds in the account at a future date.
Mini Accounts and Micro Accounts
Forex accounts for those traders who want to start small, and yet do not want to trade just with virtual money, can offer a great opportunity to gain experience with relatively little money placed at risk. These accounts are commonly known as Mini accounts and Micro accounts.
- Mini Accounts – can usually be opened with a $1,000 minimum deposit and have a size of 10,000 units of the base currency, typically making the minimum fluctuation of one pip equivalent to $1 for EUR/USD.
- Micro Accounts – this type of forex account can be opened with as little as $1 and they tend to have a micro-lot size of 1,000 units of base currency. This makes the minimum fluctuation of one pip equivalent to $0.10.
By trading with mini and micro accounts, traders can evaluate not only their own performance, but the performance of the forex broker and the efficiency of their order entry system and online trading platform offered. More importantly, a trader can learn how to control risk and manage their money more effectively, all without the stress of working with larger size trading lots. Micro and Mini accounts help traders to more easily gauge their emotional reactions when trading.
Even though some standard forex accounts can be opened for as little as $1,000, most brokers offer standard accounts for initial deposits of $10,000 and up. The minimum pip fluctuation on a standard account for EUR/USD is on the order of $10, and the minimum lot size might be $100,000, with up to 100:1 leverage offered in some cases.
Nevertheless, leverage not only magnifies profits, but also magnifies losses, and so with a highly-leveraged account and a losing market position, the account balance could erode very quickly prompting a margin call or an automatic close out of open positions. Many brokers recommend a more prudent amount of leverage, perhaps more in the 4:1 to 20:1 range being closer to ideal.
Not all forex brokers offer premium or V.I.P. accounts, and those that do often require a minimum deposit of $10,000 to $100,000. The premium forex trading account generally offers direct service to the broker’s trading desk and sometimes extends leverage of up to 500:1. One must realize that when you increase leverage you also increase risk.
In addition, many brokers will guarantee a tighter spread to premium trading account holders, as well as other extras. Trading might also occur in larger standard lots of 10,000 units of base currency, with a typical minimum fluctuation being $10 per pip on EUR/USD.
While a large number of forex brokers compete for your business, it can really pay to research online brokers first before committing any funds. One way to start shopping for a forex broker is to visit forex discussion forums. Often, other traders will comment about the brokers they opened their forex accounts with and what kind of service they received.
Other things to consider would be execution time and whether the broker is a Market-maker or Non-dealing desk (NDD) broker, or whether they use an Electronic Communications Network or ECN to provide pricing. Also worth checking out is if your orders will be handled automatically in an electronic system or if you will need to go through a dealing desk. Another important consideration for some traders these days involves whether the online dealing platform offers or supports automated trading systems, and if so, which ones.
While seasoned forex traders coming from a professional trading background can often jump right into the retail forex market, novice traders will usually first want to get more familiar with how the forex market works by doing some in-depth research to further their forex education. Once they better understand how the forex market and trading works, they can open a forex demo account to test their skills before they start trading in a live account.