Forex Trading Account Types Explained

If you haven’t noticed yet let me enlighten you about a variety of choices forex accounts. Some forex brokers only offer two – demo account for practicing your forex skills with virtual money and a real account where you trade with real cash. However, some forex brokers offer more than that. So before you start chocking on the amount of forex account options out there, let’s take a look at some variety of account types.  

The so called “Mini Account ” is usually favored by beginners in forex trading since the minimum deposit requirements could be as low as $1. Of course we all welcome the small amount of investment, but usually mini accounts are accompanied by higher pip spreads. So if your agenda is to trade with tight spreads such as 3 pips or lower mini account terms will most probably disappoint you. Besides spreads mini account might have different leverage options, less currency pairs to choose from, smaller trading lot size, different margin requirements, different trading platform or less trading tools and even less support.  

A Micro or Mini account can offer, for example from Octafx Broker, the following trading terms:

  • Floating spreads, starting at 0.4 pips or Fixed spreads, starting at 2 pips
  • Minimum deposit of $100 or less
  • 28 currency pairs + gold and silver+ 4 indices + 3 cryptocurrencies
  • Up to 1:500 leverage
  • Margin call / stop level 25% / 15%
  • Scalping, Hedging, news trading allowed 

Standard forex account requires a higher deposit but it is usually accompanied with traditional trading platform with 24 hour assistance, low margin requirements, nicer leverage options, higher amount of currency pairs, and last but not least much lower spreads. 

Standard or classic Account specification can include the following (the example taken from Liteforex Broker):

  • Spread – floating, from 1.8 points
  • Commission- None
  • Execution type – MARKET EXECUTION
  • Platform – MT4, MT5
  • Leverage 1:500 – 1:1
  • Account base currency USD, EUR, CHF, RUB, MBT
  • Minimum deposit $50
  • Rate, % per annum 0%
  • Islamic accounts Yes
  • Minimum lot 0.01
  • Maximum lot 100
  • Minimum step 0.01
  • Max. number of orders Unlimited
  • Margin Call Level 100%
  • Stop Out Level 20%
  • Social trading Available

And finally we have the fancy accounts! Most of them even have fancy names such as Gold, Platinum or VIP. The minimum deposit for such accounts varies, but it usually not less than $10,000. With large deposit comes great power and by that I mean VIP treatment. VIP forex traders enjoy tailor-made reviews, hedging and trading consults, special trading tools, charting, fundamental and technical analysis, tips and recommendations from trading coaches, financial tutors and individual forex account manager who will attend your most desired trading needs (or so we hope!) 

As an example of a VIP account we have reviewed the XM Zero account from XM Forex Broker:

The new account type, XM Zero, features ultra-thin spreads as low as zero pips, along with XM’s no re-quotes execution policy. The clients can choose to open an XM Zero Account with up to 500:1 leverage in USD, JPY or EUR base currencies and trade over 55 currency pairs, as well as gold and silver on MT4 and MT5 for Windows, Mac, iPhone, iPad and Android powered devices. The commission for the XM Zero Account is $3.5 per $100,000 traded.

Lastly, we have got the ECN Accounts.This type of account offers the highest annual percent accrued on unused funds, and access to deep liquidity with low floating spreads. The trading account is created on the basis of modern ECN technology that provides access to the best prices on the market, stable and guaranteed fast execution with no re-quotes and no conflict of interest.

  • Increased quoting precision
  • Market execution of orders with no requotes
  • No Stop & Limit levels
  • Scalping and news trading allowed
  • Unlimited duration of transactions
  • Trades are delivered directly to liquidity providers
  • No conflict of interests

The example is the ECN Account specification from Liteforex offer the following:

Spread floating, from 0.1 points

Commission From 5$ per lot

Execution type MARKET EXECUTION

Platform MT4/MT5

Leverage 1:500 – 1:1

Account base currency USD, EUR, CHF, RUB, MBT

Minimum deposit $50

Rate, % per annum 2.5%

Negative Balance Protection Yes

Islamic accounts Yes

Social trading Available

Minimum lot 0.01

Maximum lot 100

Minimum step 0.01

Max. number of orders Unlimited

Margin Call Level 100%

Stop Out Level 20%

The Most Common Trading Account Types

As we’ve just explained, the most common live trading account types are based around the size of the lots you wish to trade. Considering this, each different type of account has a different minimum deposit level too.

Mini/Micro Accounts

Micro accounts are, as their name suggests, accounts suitable for traders with a small amount of capital. They allow you to enter the market with a small minimum deposit limit ($100 or less). As these accounts have a low barrier to entry, however, there are restrictions on your trading activity. Most micro accounts limit you to trading nano or micro lots. This helps you to control your risk-levels, making these types of accounts perfect for beginner traders.

Standard Accounts

Different brokers use different names for their standard accounts. Some brokers may call this type of account ‘Classic’ or ‘Intermediate’. They may also refer to them as ‘Premium’ or ‘Gold’ accounts, which is a little misleading as these accounts are actually the broker’s regular offering.

Standard accounts usually have a minimum deposit limit of around $100 – $500, and they allow you to trade mini-lots. Some standard accounts, however, may also allow you to trade standard lots but this is rare.

VIP/Professional Accounts

Whilst the names of these account types suggest that you would need to be accredited if you wished to open one, that’s not necessarily the case. VIP accounts are generally just reserved for those who have a large amount of capital. They have a high minimum deposit limit (around $10,000) and allow you to trade standard lots. These types of accounts are usually ECN accounts too, which means they allow you to trade in the market directly.

It is important to note that professional accounts for EU clients are slightly different. Under European regulations by ESMA, regular retail traders are subject to leverage limits. Should you want to access higher leverage levels, you can apply for an EU professional account. In this situation, you will need to prove your trading experience and credentials. This could be by passing a test or by submitting documentation.

Keep in mind that higher deposit requirements do not guarantee the quality. There are many forex brokers that promise lots and give you less then nothing. Do your homework before you sign up for any account – check the requirements, double check terms and conditions and look through the features and options. 

Demo Accounts

What’s more, a demo account is often listed by professional traders as the best Forex account type for beginners. A demo account is very similar to a regular, live account, as it usually offers very realistic ( or even identical) market conditions. The only difference between the two is that the former does not put your actual money at risk, as the virtual funds are used instead.

Demo accounts are often used by inexperienced traders who are anxious about going straight into the actual Forex trading and seek a way to practice their trading skills and gain an understanding of how the market works, without putting their hard-earned funds at risk. Moreover, demo accounts are sometimes used by experienced traders who wish to test out a new trading strategy, platform tool, or feature.

Here are some benefits of using a demo account:

  • Demo accounts allow its users to learn some of the basic trading skills and avoid the common mistakes, that beginners often make – for example, opening a trade by accident.
  • A demo account can help you determine the trading asset that you prefer to trade, as well as the best time to trade it to gain the most profit.
  • With one of the demo Forex broker accounts, you can find the trading strategy that suits you best
    If you open a demo account with the same trading platform that you intend to use in the future, you can both learn to trade with it confidently, and determine whether or not you want to use it at all.

Swap-free Accounts

Most of the trading account types mentioned above will come with swap fees. This refers to the fee you incur for holding a position overnight. Traders who wish to hold positions open for a long time however, such as swing traders or investors, suffer heavy fees with a regular account. To prevent this, some brokers offer swap-free accounts.

Whilst swap-free accounts can seem appealing, it’s not simply a case of avoiding fees. Swap-free accounts usually come with higher trading costs and various restrictions. As such, unless you do plan on holding positions for a long time, it is normally best to avoid these types of accounts.

One exception to this rule is if you are a Muslim forex trader. Swap-free accounts are also sometimes called Islamic accounts. This is because they are often used by Muslim traders who cannot incur interested fees due to their religious beliefs.

What Forex account should I choose?

To know what Forex account you should choose, consider your skill-level, what you want to use the account for, and how much you are willing to invest in Forex.

As we have discussed, each of these accounts have unique characteristics. Consider what you want to achieve and what your abilities are then pick the account that satisfies your needs best. We highly recommend learning about the best Forex segregated accounts that offer additional safety for clients.

FAQ

Can I Skip Practice on a Demo Account?

You can, but it would come at a risk. Practicing on a demo account is an excellent way to avoid losing actual money as you hone your skills.

What is the Difference Between a Micro and Mini Account?

The difference is that trades for mini accounts are limited to 10,000 lots, while trades for micro accounts are limited to 1,000 basic units.

Are ECN Forex Accounts Illegal?

No. ECN Forex trading accounts are perfectly legal as they are regulated and do not involve criminal activity such as tax evasion.

Can I Open More Than One Forex Trading Account?

Yes. However, you must be careful to manage them without incurring losses.

Conclusion

To sum up, there are many different types of accounts on today’s Forex market. The trader has complete freedom to choose how and what to trade. However, when choosing an account, you should ask yourself a few simple questions: Do I have sufficient knowledge of how the Forex market works? How much do I want to earn? How long am I willing to wait for my results? What level of risk am I willing to accept? When you’ve answered these questions, you will see clearly what the ideal type of account is for you.

As for me, I believe that an ECN account is the ideal choice for any trader. These accounts allow you to start with a small amount of capital and eliminate the role of a broker in your trading, thus avoiding unnecessary high risk in the event that a broker provides dishonest services.

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