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  • Apinya Kamon
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  • Last Posted: 2017-07-03 09:51:41
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Setting Up a Forex Trading Account

2015-07-03 09:06:28

There are four types of trading accounts to choose from when opening a forex account: standard, mini, micro, and managed.


Standard Trading Accounts



The most common trading account, it requires sufficient up-front capital to trade full lots. Each lot is equivalent to $100,000, but a trader does not need to come up with $100,000 of capital to trade. Applying the rules of margin and leverage, normally 100:1 in forex, one needs to have $1,000 to start trading one standard lot. However, several brokers require a starting minimum balance of at least $2,000 to open a standard trading account. Others require $5,000 to $10,000. Let’s assume every pip is worth $10. If a position moves by 100 pips in one day, a trader will earn $1,000, or lose $1,000 if it moves against you.


Mini Trading Accounts



In simplest terms, it is an account enabling traders to make transactions using mini lots. Each lot is equivalent to $10,000 or 1/10 of a standard account. Most brokers that offer standard accounts also provide mini accounts for them to attract more clients. Inexperienced traders can trade $10,000 in increments without blowing through an account. Also, majority of mini accounts can be opened with $250 to $500, as well as a leverage of up to 400:1. But low risk comes with low reward. Mini accounts with $10,000 can only generate $1 per pip movement.


Micro Trading Accounts



The sister account of mini, these are also offered by some online brokers. Having pip movements of 10 cents per point, such accounts may be traded in $1,000 lots. These are typically used by traders with constricted foreign exchange knowledge and may be opened for as low as $25.


Managed Trading Accounts



You own the capital, but have no discretion to buy and sell. Account managers, typically professional forex brokers, hold the account and work on your set objectives. Under this account, there are two types:





  • Individual Accounts - A broker oversees each account separately and makes decisions for each investor.




  • Pooled Funds - Capital is placed into a mutual fund along with that of other investors. Profits are shared and accounts are classified based on risk tolerance.




Be wary that most managed accounts require a minimum of $2,000 for pooled accounts and $10,000 for individual accounts. Aside from that, accounts managers keep a commission, also known as account maintenance fee, which is determined per month or per year. And since it is supervised by an account manager, you won’t have the flexibility to place a position.


Before opening a trading account, take into account your financial condition, size of initial investment, amount of time to trade the currency market, and risk tolerance.