Forex Trading Accounts - Forex Accounts Types Explained - Forex Trading Account Meaning
In recent years retail forex trading has grown hugely in popularity and the demand for different types of Forex accounts has grown. There are many different account types available to any trader who wants to invest in the online foreign exchange market online forex trading market - Forex Trading Account Meaning.
The Foreign exchange market is a highly leveraged market for speculating on currency valuations. Forex traders can purchase large amounts of currency units using little capital of their own using leverage - Leverage is what makes Forex attractive to many online forex traders - with leverage a forex trader can make more profits or losses because they use less of their capital and borrow the rest.
There are different types of accounts available to help investors better manage their capital as well as their forex trade transactions.
How a Real Forex Account Looks Like
It is therefore important that the forex currency traders consider what they want to get out of their trading, before deciding on the Forex account type to open.
Below is a comparison of the three types of forex trading accounts commonly used to trade foreign exchange currencies. The forex account types review below explains the different features of each of the three types of forex accounts.
1. Standard Forex Trading Accounts Explained - Standard Forex Accounts Types Explained
Forex Trading Account Meaning - Standard Forex Account. A Standard Forex Account is denominated in US Dollars and forex trade transactions are placed using standard lots. One standard lot is 100,000 units of currency. One lot is also known as a one contract. Minimum opening capital - at least $10,000 USD.
1 contract refers to the minimum size of a single forex trade transaction. This forex account option is the most suitable for investors with enough capital to invest in forex trading - this forex account option requires $10,000 to $50,000 dollars in starting capital, For this standard forex account the investor will not be under capitalized and with good forex money management rules and forex money management strategies, this standard forex account option has the best chance for profitability because it is not under capitalized. Under capitalization is what makes most investors in forex trading not profitable.
It is not recommended to open a standard forex trading account unless you have an account balance of at between $10,000 minimum and $50,000.
Professional Money Managers recommend $50,000 Dollars minimum to open this standard forex trading account and only opening 1 or 2 lots maximum per every $50,000 dollars you have in your forex account. However, most online forex brokers will still open this standard forex trading account for you if you have more that $10,000.
If an exchange rate for EURUSD is quoted at 1.4000, then the smallest forex trade transaction available in a standard forex trading account is worth $140,000 of currency to buy 100,000 EUR. With forex leverage of 100:1, this is only $1,400 of your money and the rest of the money you will borrow from your forex trading broker (with leverage of 100:1, your forex broker gives you $100 dollars for every $1 dollar that you have, therefore for this forex trade transaction using only $1,400 of your forex trading capital, the forex broker will give you $100 dollars of forex leverage for every $1 dollar you have, meaning after forex leverage you will have $1,400*100=$140,000 which you can then buy 1 standard lot of EURUSD).
For Standard Lots Minimum Price Movement of 1 pip = $10
2. Mini Forex Trading Account Explained - Mini Forex Accounts Types Explained
Forex Trading Account Meaning - Mini Forex Account. A Mini Account is an account that allows investors to make trades using mini lots. A mini lot is equivalent to $10,000 which is one-tenth that of a standard lot. Forex brokers offer mini lots as a way to attract investors who do not have a lot of capital - as the minimum required starting capital is about $1,000 USD
Mini lots are similar to standard lots; however, mini lots are traded in lots of 10,000 units of currency rather than 100,000 units. This lowers the initial deposit required to open a mini forex account and offers better risk management for investors without a lot of trading capital.
This mini account is recommended for those traders with only a few thousand dollars as trading capital.
If an exchange rate for EURUSD is quoted at 1.400, then the smallest forex trade transaction size available in a mini forex account is worth $14,000 used to buy 10,000 EUR. With forex leverage of 100:1, this is only $140 of your trading capital.
A mini forex trading account is suitable for account equity balances between $5,000 and $10,000. The trade transaction lots are smaller so the forex traders without enough capital to open standard lots have better money management for their account equity balance.
For Mini account - Minimum Price Movement of 1 pip = $1
3. Micro Forex Trading Account Explained - Micro Forex Accounts Types Explained
Forex Trading Account Meaning - Micro Forex Account. Micro Forex Accounts use lot sizes of only 1,000 currency units. These Micro forex trading accounts are often appropriate for investors without a lot of trading capital and can sometimes be opened with only a $100 minimum balance.
This Micro forex trading account option allows the forex trader to open trades in micro lots. 1 micro lot is one-tenth of a mini lot and one-hundredth of a standard lot.
If an exchange rate for EURUSD is quoted at 1.400, then the smallest forex trade transaction available in a micro forex trading account is worth $1,400 used to buy 1,000 EUR. With forex leverage, this is only $14 of your money. This Micro account option is generally best suited for account equity balances that are between $1,000 and $5,000
For Micro forex account - Minimum Price Movement of 1 pip = $0.1
In Forex, one lot is the standard transaction minimum of a given currency pair. But many forex brokers offer fractions of this standard lot to enable more retail forex traders to access the forex market. Being able to offer mini lots and micro lots reduces the minimum forex trade transaction size thus giving the forex beginner traders and also those forex traders without a lot of capital to start investing and get a feel of the foreign exchange market without investing a lot of trading capital.
There is learn forex online tutorials that a trader can read even before opening a real forex trading account, and to get extra practice in forex trading before opening a forex trading account a beginner forex trader should open a practice Forex demo trading practice account with a forex broker - so as to practice placing forex trade transactions before opening a real forex trading account and investing with real money.
During the forex training period using the demo practice trading account, the beginner forex trader will learn the key factors needed to succeed in forex trading such as; forex education, forex money management, forex trading plan and forex trading systems.
The types of Forex trading strategies used and the skills required for any of these 3 forex trading accounts are essentially the same - those skills and strategies required for the Standard or Mini or Micro Account are the same the only difference to be adjusted are the forex money management rules for each forex trading account type.