You can trade successfully by choosing the account type that suits you. Let’s take a look at account types so you can make an informed decision.
This is the original type of account in retail forex. “Standard” means “standard lot size.”
A standard lot is equal to 100,000 currency units, or $10 per pip if the market currency is USD (e.g. EUR/USD).
Buying or selling one standard lot means buying or selling 100,000 units of the base currency. If you buy one standard lot of EUR/USD, you buy 100,000 units of EUR as the base currency and sell USD as the counter or quote currency. If the buy or sell price of EUR/USD is $1.2000, the cost of 100,000 euros is $120,000.
If the quote currency is not USD, for example USD/JPY, then the quote currency is JPY and the value of 1 pip depends on the forex pair and its price. DailyForex’s Pip Calculator can automatically calculate pip values.
how is it margin? If my leverage is 1:30, my margin requirement would be $4,000 ($120,000 divided by 30) per standard lot.
- Being the largest account type, the service offers better spreads and liquidity.
- Opening a standard account requires a certain amount of capital, so you have the potential to earn quite a bit of money.
- Requires a larger minimum account size.
- Standard lot accounts make risk management difficult. For example, suppose you want to calculate a position size of 1.5 standard lots. In that case, you will have to decide whether to trade in 1 lot or 2 lots, but neither option is ideal.
Mini trading account refers to mini lots.
A mini lot is equal to 10,000 currency units, or $1 per pip if the market currency is USD (e.g. EUR/USD).
Mathematically:
10 mini lots = 1 standard lotor:
Mini lot = 0.1 standard lot.
If you buy one mini lot of EUR/USD and the ask or offer price of EUR/USD is 1.2000, your 10,000 euros will cost you $12,000. If the leverage is 1:30, the margin requirement will be $400 per minilot ($12,000 divided by 30).
- Mini accounts allow for more precise position sizing.
- The smaller the minimum trade size, the smaller the required minimum margin and account size.
Mini accounts have few disadvantages. It has become so popular that almost all brokers offer mini accounts with the same terms and conditions as standard accounts. Therefore, mini accounts are the sweet spot for account size.
Micro trading account refers to micro lots.
A microlot is equivalent to 1,000 currency units, or $0.10 per pip if the market currency is USD (e.g. EUR/USD).
Mathematically:
100 micro lots = 1 standard lotor:
1 micro lot = 0.01 standard lot.
If you buy one micro lot of EUR/USD and the ask or offer price of EUR/USD is 1.2000, it means that the cost of 1,000 euros becomes $1,200. If the leverage is 1:100, the margin requirement is $12 per micro lot ($1200 divided by 100).
Advantages of micro trading accounts
- Micro accounts allow for much smaller trade sizes and therefore smaller margin requirements and account sizes. They can create a great beginner account.
- Micro accounts often have higher leverage, such as 1:100, 1:200, or even higher.
- Micro accounts usually do not enjoy the best trading conditions.
Cent trading account refers to cent lot.
A cent lot is equivalent to 100 currency units, or $0.01 (or 1 cent) per pip if the market currency is USD (e.g. EUR/USD).
Mathematically:
1000 cent lot = 1 standard lotor:
1 micro lot = 0.001 standard lot.
If you buy a 1-cent lot of EUR/USD and the ask or buy price of EUR/USD is $1.2000, your 100 euros will cost you $120. If the leverage is 1:100, the margin requirement will be $1.20 per cent lot ($120 divided by 100).
- The Cent account allows for the smallest account size, with a minimum initial deposit of $1.
- Cent accounts often have incredibly high leverage (e.g. 1:1000).
- Brokers offering Cent accounts are often unregulated in the best regions.
- Cent accounts may not have access to the best spreads, execution, or liquidity.
A demo account is a test or practice account that does not use real money.
- You can try out the platform or broker using a demo account without completing the account opening process or depositing real money.
- You can test other strategies and ideas on the demo account, which is separate from the live account.
- A demo account allows you to iron out many mistakes before risking real money.
- Demo accounts do not take into account slippage during execution.
- There are no emotions involved in a demo account as no real money is involved.
Ann ECN account Route orders through the central bank market. Orders are filled at the best available price without dealer intervention.
ECN accounts have variable spreads and always charge fees.
- ECN brokers do not hold positions in the market. That is, they will never take a position against you.
- ECN accounts give traders direct access to leading banks as liquidity providers, increasing price transparency and increasing liquidity.
- ECN accounts execute faster than STP brokers.
- Requotes and slippage are kept to a minimum as there is no dependence on other brokers for execution.
- For ECN brokers, the spreads are narrower.
- ECN accounts are best suited for larger account balances.
- ECN accounts are typically located in a more regulated environment and therefore often have lower leverage.
An STP account is a type of no-dealing desk account. Straight through processing (STP) is a technology that passes trades directly to counterparties. There could be another of his STP brokers or his ECN broker on the other side of the trade.
STP accounts can have fixed or floating spreads.
- STP brokers do not hold positions in the market and therefore will not trade against you.
- STP accounts are often available with higher leverage than ECN brokers.
- Compared to ECN brokers, STP brokers are often smaller and account execution can be slightly slower.
- STP brokers have higher spreads than ECN brokers.
- STP accounts may be dependent on other brokers to close trades, increasing the possibility of requotes and slippage.
PAMM stands for Percentage Allocation Money Management. This is a type of pooled funds in Forex trading.
Investors can be part of a series of sub-accounts that are traded together by a fund manager or trader who has permission from the customer to trade the account under a limited power of attorney (LPOA) agreement.
Most PAMM contracts are set up with profit sharing. For example, the asset manager receives her 20% of all new profits earned from the customer’s account.
- PAMM is similar to investing in a fund with other traders and benefiting from their time, knowledge and skill, but the money remains securely in your name.
- The broker has a standard PAMM setup to automate the procedure and also provides a limited power of attorney template.
- Most PAMM setups require you to use the same broker as your fund manager.
- Since there is no guarantee of profit, you must rely on the skill and execution ability of the money manager.
Copy trading account allows you to automatically copy trades from other people to your account. No manual intervention is required to execute trades.
Most copy trading services are set up as a flat subscription fee.
- It’s easy to check your performance and see your track record.
- Copy trading allows you to take advantage of other traders’ time and skills.
- It is easy to follow multiple copy trading services.
- I rely on the skills and execution abilities of others. Copy trading accounts do not guarantee profits.
- I do not intend to use copy trading services to improve my trading skills.
Swap-free accounts, or Islamic accounts, replace interest rate swaps with fixed fees. These are designed as “Shari’ah compliant” accounts for Islamic traders where giving and receiving interest is not permitted.
- Those who practice Islam can trade according to Sharia rules.
- Fixed fees can be higher than regular swap fees.
To choose a Forex trading account, you need to start by choosing your account size by choosing a standard, mini, or micro account. Next, you need to decide whether you need an ECN, STP, or Market Maker account. The choice comes down to whether you prefer access to liquidity providers or internally set prices. This reduces price volatility.
Different account types are available to suit the needs of other traders. Consider the size of your first deposit to determine the minimum lot size for mini-accounts, micro-accounts, etc. Consider the type of execution: ECN, STP, or traditional dealing desk (market maker). ECN accounts offer the most direct access to liquidity providers, while market makers offer smoother price movements since prices are set internally.
If you want to take advantage of other traders’ time and skills, but don’t want to make trading decisions yourself, most brokers offer PAMM and copy trading services (especially for MetaTrader).
For Islamic traders, there are swap-free (Sharia-compliant accounts).
Which Forex account type is best?
Mini accounts feature the best combination of brokers that offer flexible trade sizes and good execution. ECN accounts have the most direct access to liquidity. It is suitable for short-term traders due to its low spreads, fast execution, and ability to capture small price movements.
What types of FX accounts are there?
There are standard, mini, micro, and cent accounts depending on the trading size. Executions include ECN, STP, and dealing desk (market maker) accounts.
What is the best account type for FX beginners?
Typically, a mini account size or smaller using an ECN or market maker (dealing desk) is best for beginners. ECN is perfect for short-term traders.
How many types of foreign exchange trading accounts are there?
There are four account types depending on trade size: Standard, Mini, Micro, and Cent accounts. Executions include ECN, STP, and market maker (dealing desk) accounts.