April 12, 2024

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Types of Forex Trading Accounts

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The Forex industry offers multiple account types to suit nearly every trader style, from Market Makers, ECN accounts, Standard Lot Accounts, and Micro Accounts to Mirror Trading accounts, Demo Accounts and more.

Choosing the right account type for you can help set you up for trading success. Let’s review the account types to ensure you can make an informed decision.

This is the original type of account in retail Forex. “Standard” refers to “Standard lot sizes.”

A Standard Lot equals 100,000 currency units, or $10 per pip if the quote 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 I buy one Standard Lot of EUR/USD, I buy 100,000 units of EUR as the base currency and sell USD as the counter or quote currency. If the ask or bid price of EUR/USD is $1.2000, 100,000 EUR will cost 120,000 USD.

If the quote currency is not USD, for example, with USD/JPY, the quote currency is JPY, the value of one pip will depend on the Forex pair and its price. DailyForex’s Pip Calculator can calculate the pip value automatically.

What about margin? If my leverage is 1:30, the margin requirement will be $4,000 ($120,000 divided by 30) per Standard Lot.

  • Better service spreads and liquidity as they are the largest account type.
  • The potential to earn serious money, as a decent amount of capital is required to open a Standard Account.
  • A higher minimum account size is required.
  • It’s harder to manage risk with a Standard Lot account. For example, suppose I calculate a position size of 1.5 Standard Lots. In that case, I must decide whether to place the trade with 1 Lot or 2 Lots—neither option being ideal.

A Mini Trading Account refers to Mini Lots.

A Mini Lot equals 10,000 currency units, or $1 per pip if the quote currency is USD (e.g., EUR/USD).

Mathematically:

10 Mini Lots = 1 Standard Lot, or:

Mini Lot = 0.1 Standard Lots.

If I buy one Mini Lot of EUR/USD, and the ask or offer price of EUR/USD is 1.2000, 10,000 EUR will cost 12,000 USD. If my leverage is 1:30, the margin requirement will be $400 ($12,000 divided by 30) per Mini Lot.

  • Mini Accounts allow for more precision in position sizing.
  • A smaller minimum trade size requires less minimum margin and a lower account size.

There are almost no disadvantages to Mini Accounts. They have become so popular that nearly all brokers offer Mini Accounts with the same terms as Standard Accounts. For that reason, Mini Accounts are the sweet spot for account sizes.

A Micro Trading Account refers to Micro Lots.

A Micro Lot equals 1,000 currency units, or $0.10 per pip if the quote currency is USD (e.g. EUR/USD).

Mathematically:

100 Micro Lots = 1 Standard Lot, or:

1 Micro Lot = 0.01 Standard Lots.

If I buy one Micro Lot of EUR/USD, and the ask or offer price of EUR/USD is 1.2000, that means 1,000 EUR will cost 1200 USD. If my leverage is 1:100, the margin requirement will be $12 ($1200 divided by 100) per Micro Lot.

Pros of a Micro Trading Account

  • Micro Accounts allow for much smaller trade sizes and, therefore, smaller margin requirements and account sizes. They can make excellent beginner accounts.
  • Micro accounts often have higher leverage, such as 1:100 and 1:200, and even higher.
  • Micro Accounts do not generally enjoy the best trading conditions.

A Cent Trading Account refers to Cent Lots.

A Cent Lot equals 100 currency units, or $0.01 (or 1 cent) per pip if the quote currency is USD (e.g., EUR/USD).

Mathematically:

1000 Cent Lots = 1 Standard Lot, or:

1 Micro Lot = 0.001 Standard Lots.

If I buy one Cent Lot of EUR/USD, and the ask or bid price of EUR/USD is $1.2000, 100 EUR will cost 120 USD. If my leverage is 1:100, the margin requirement will be $1.20 ($120 divided by 100) per Cent Lot.

  • Cent Accounts allow for the smallest account sizes, with initial deposits as low as $1.
  • Cent accounts often have incredibly high leverage, e.g., 1:1000.
  • Brokers that offer Cent accounts are often not regulated in the best regions.
  • Cent Accounts may not have the best spreads, execution or access to liquidity.

A Demo account is a test or practice account that does not use real money.

  • I can try out a platform or broker with a Demo account without completing the account opening procedures or depositing real money.
  • I can test other strategies or ideas in a Demo account separate from my live account.
  • Demo accounts allow me to iron out many mistakes before risking real money.
  • Demo accounts do not account for slippage in execution.
  • Demo accounts do not involve emotions, as no real money is on the line.

An ECN account routes orders through the central interbank market. The orders are filled at the best available prices with no dealer intervention.

ECN accounts have variable spreads and always charge a commission.

  • An ECN broker does not hold a position in the market, meaning they will never take a position against you.
  • With ECN accounts, traders directly access top-tier banks as liquidity providers, meaning greater price transparency and increased liquidity.
  • ECN accounts have faster execution than STP brokers.
  • As they are not reliant on other brokers for fills, there are minimal re-quotes and slippage.
  • Spreads are tighter with ECN brokers.
  • ECN accounts are best for higher-sized account balances.
  • Because ECN accounts are usually located in more regulated environments, they often offer low leverage.

An STP account is a type of No Dealing Desk account. Straight Through Processing (STP) is a technology that passes trades directly to a counterparty. On the other side of the trade may be another STP broker or an ECN broker.

STP accounts can have fixed or variable spreads.

  • STP brokers will not trade against you as they do not hold a position in the market.
  • 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 marginally slower.
  • The spreads of STP brokers will be higher than with ECN brokers.
  • An STP account may rely on other brokers to fill trades, increasing the chance of re-quotes and slippage.

PAMM stands for Percentage Allocation Money Management. It is a form of pooled money in Forex trading.

Investors can be part of a set of sub-accounts traded together by a money manager or trader who has permission from clients to trade their accounts under a Limited Power of Attorney (LPOA) agreement.

Most PAMM agreements are set up with a profit share. For example, the money manager will take 20% of all new profits they generate from their clients’ accounts.

  • PAMM is like investing in a fund with another trader and benefiting from their time, knowledge and skills but with the money remaining safely in your name.
  • Brokers have standard PAMM setups to automate the procedure, even providing template Limited Power Of Attorney agreements.
  • Most PAMM setups require using the same broker as the money manager.
  • I must rely on the money manager’s skills and ability to perform, with no guarantee of profits.

Copy Trading accounts allow me to copy trades automatically from someone else into my account. I do not have to intervene manually to execute trades.

Most Copy Trading services are set up as a flat subscription fee.

  • It’s easy to see performance and verify track records.
  • Copy Trading lets me use the time and skills of another trader.
  • It’s easy to follow more than one Copy Trading service.
  • I’m reliant on someone else’s skills and ability to perform. There is no guarantee of profits with Copy Trading accounts.
  • I will not develop my trading skills using a Copy Trading service.

A Swap-free account, or Islamic account, replaces the interest-rate swap with a fixed fee. They’re designed as “Shariah-compliant” accounts for Islamic traders for whom giving or receiving interest payments is not permissible.

  • Those of the Islamic faith can trade by Shariah rules.
  • The fixed fee may be more expensive than a regular swap charge.

In choosing a Forex trading account, you should begin by selecting an account size opting for a standard, mini, or micro account. Next, you should determine whether you want an ECN, STP, or Market Maker account. Your choice will depend on whether you prioritize access to liquidity providers or internally set prices, which result in lower price volatility.

Many different account types are available to match other traders’ needs. Consider the size of your initial deposit to help decide the minimum size of lots, e.g., Mini Account or Micro Account. Consider the type of execution: ECN, STP or traditional Dealing Desk (Market Maker). While ECN accounts offer the most direct access to liquidity providers, Market Makers offer smoother price fluctuations, as prices are set internally.

Most brokers offer PAMM and Copy Trading services (especially for MetaTrader) if you want to use the time and skills of another trader and don’t wish to make your own trading decisions.

For Islamic traders, there are swap-free (Shariah-compliant accounts).

Which Forex account type is best?

Mini Accounts have the best combination of flexible trade sizes and brokers that offer good execution. ECN accounts have the most direct access to liquidity. They are better for short-term traders because of the low spreads, fast execution and ability to capture small price fluctuations.

What are the different types of FX accounts?

By trade sizes, there are Standard, Mini, Micro and Cent Accounts. For execution, there are ECN, STP and Dealing Desk (Market Maker) accounts.

What is the best account type for Forex beginners?

Mini Account sizes or smaller are usually best for beginners, with either ECN or Market Maker (Dealing Desk). ECN is best for short-term traders.

How many types of Forex trading accounts are there?

By trade sizes, there are four account types: Standard, Mini, Micro and Cent Accounts. For execution, there are ECN, STP, and Market Maker (Dealing Desk) accounts.

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