As you begin your career as a forex trader, selecting the ideal forex account type will be one of the most important decisions you would have to make. Forex accounts are opened with retail forex brokers and are specifically used to trade foreign currencies.
Forex trading accounts come in different forms and sizes, each with its own set of features and benefits. While some trading accounts are best suited for beginners to start with, others are best for seasoned traders who are willing to invest large amounts of money. Given the fact that the different types of accounts have different trading conditions, it is important to set up the right account for yourself.
You may choose to open a standard account, a mini account, a micro account, an ECN account, or any other account type based on your needs. There is also a forex swap-free account also known as an Islamic account, which is used by traders following the Islamic faith. In this account, traders won’t have to pay swap fees for keeping the position open overnight.
In this article, we will explore the different types of forex accounts, and their features, and identify which one may be the best fit for you.
Forex Account Types
Online forex brokers typically offer a variety of account types, the names used to describe these accounts may vary from one broker to another but the attributes of a particular account remain the same. Let’s discuss the common types of forex trading accounts in detail:
Based on the Lot Size:
1. Standard Account
One of the most common types of forex accounts is the standard account. This is a traditional account that is suitable for most traders, particularly those who want to trade larger lot sizes. A Standard account is also known as a Classic Account. In a standard account, one lot size typically represents 100,000 units of the base currency versus the amount of counter currency set by the exchange rate.
2. Mini Account
The mini account provides traders with access to mini lots, which are one-tenth of the size of the standard lot. They represent 10,000 of the base currency units. For the most part, mini-account holders will have access to the same market conditions as those who are using the standard account. The only significant difference would be the reduction in the lot size.
3. Micro Account
A micro lot is typically the smallest account size a forex trader can trade. The micro account holders can trade micro-lots which represent 1,000 units of the base currency. Micro accounts appeal primarily to beginner traders as these require minimal investments. Using a micro account, new traders can enter the currency market by taking small position sizes which further reduces the risks and limits the potential losses.
Based on the Mode of Execution:
4. ECN Account
ECN is a short form for electronic communication networks. This is the most preferred account type for most traders based on the mode of execution. ECN accounts give traders direct access to other market participants. Instead of passing the order flow on to market makers, it is passed on to the liquidity providers, providing transparency, deep liquidity, and narrow spreads to the traders.
5. STP Account
STP, short for Straight Through Processing, is a no-dealing desk technology. The trading orders are passed on to liquidity providers using Direct Market access. When traders use an STP account, their trades are first routed to the liquidity pool and then orders are filled at the best prices.
Based on the Type of Funds:
6. Demo Account
A demo account is an account that uses virtual money with which there is no monetary risk while trading the demo account. A demo account is a great way for traders to test the waters before diving deep into the vast sea of forex trading. Traders can test their strategies, trading plan, and trading conditions provided by the broker on these practice accounts. Traders should practice with different trading calculators to determine the right position size, lot size, margin, profits, and more. Having a good idea about these important parameters will help them generate consistent profits with minimum losses.
7. Live Account
A live account is a funded account in which the trader invests real money. Therefore the profits and losses will also be real. The initial minimum deposit may be different with different brokers. Once the trader has practiced enough on a demo account, he/she can then move on to depositing funds in a live account to start trading with real money. It’s a good idea to use a micro account to transition from a demo account to a live account.
Special Account Type: Forex Swap Free Account
Islamic Trading Account/Forex Swap Free Account
One type of forex account that is of particular interest to Muslim traders is the Islamic account. Islamic accounts which are also known as swap-free accounts, are designed to adhere to Sharia law, which prohibits the collection of interest. Islamic accounts offer the same features as standard accounts, but without charging or earning interest on overnight positions.
This makes them a good choice for Muslim traders who are looking to trade forex in a way that is consistent with their religious beliefs. In order to try an Islamic forex trading account, you should look for Islamic forex brokers who offer the best Islamic trading accounts.
Which Forex Account Type is Better
Choosing the right type of Forex account is a crucial step while opening a Forex account. You should put time and knowledge while researching different options thoroughly so as to avoid any wrong decision. There are several factors that should be taken into consideration but the two most important factors are
1. Minimum Deposit Requirement
While choosing the forex trading account type, the first thing you should consider should be the initial deposit requirement. Some forex trading accounts let you start with a small deposit starting from $50 or so, but some may require you to deposit a comparatively higher amount in order to start trading. Therefore, before deciding on the account type you want to use, you should review the deposit requirements.
2. The Transaction Charges
Forex brokers charge different types of fees which include spreads, commissions, swap fees, deposits, and withdrawal fees. When the fees are higher, it can eat your profits which is why traders should carefully evaluate different types of trading costs before opening an account
3. Access to the Trading Assets
Some forex brokers may put restrictions on trading certain pairs if you are using a micro or mini account, therefore it’s best to check beforehand if the currencies you want to trade are available in the account type you are interested in using.
In conclusion, there are several types of forex accounts to choose from, including standard, mini, and micro-accounts. If you are a Muslim trader, you may also want to consider an Islamic account. When choosing a forex account, it’s important to consider your trading goals, the amount of capital you have to trade with, your risk tolerance, and any special requirements you may have.
To find the best Islamic forex broker, look for a broker that is regulated by a reputable agency, is financially stable, offers a range of deposit & withdrawal methods, and has a good reputation & track record. It’s also essential to have a good understanding of the forex market and to manage your risk effectively. With the right broker and a solid trading plan, you can trade forex with confidence and achieve your financial goals.