Online forex trading is a moneymaking investment that makes it possible for traders to buy and sell currency pairs straight from your computer or mobile devices. With online forex, trading traders can compete with hedge funds and banks in currency pair trading. All you have to do is create the right trading account.
If you are considering opening an online trading account on a platform like forex MetaTrader 4, it is advisable to learn as much as possible about how they work.
Generally, you can choose from three types of online trading accounts. These are standard accounts, mini accounts, and managed trading accounts. Each type of account comes with its benefits and limitations. The right one for your needs is determined by your risk tolerance, the amount of time you will spend trading forex online, and your investment size.
Standard forex trading accounts
These are the most common types of online forex trading accounts. A standard account gives you access to currency lots of up to $100,000. The rules of margins and leverage for this account allow you to place offers as low as $1000 on your account to trade in the $100,000 currency market.
The main advantage of a standard account is that it comes with better benefits from the brokers and have better services. This is mainly because a standard account requires an upfront capital to trade.
For each pip worth 10-USD, a position that moves by 100 pips makes $1000. This high margin gain is only possible with a standard account unless one trades more than one lot in other accounts.
The main disadvantage of a standard account is that it requires a high deposit. A trader has to have a minimum start balance of no less than $2000 and can go as high as $10,000 on some platforms.
It is always important to consider the loss potential of an account. As much as it is possible to make a thousand dollars in a move, it is also as easy to lose the same amount or more if a position moves against your trade. This makes standard accounts unsuitable for novice traders.
Mini online trading accounts
This online trading account allows traders to make use of mini lots when transacting. A mini lot in most online forex trading platforms is worth $10,000.
Brokers interested in attracting new novice traders to their platforms use mini account options. Since new traders are always reluctant to trade full lots, mini accounts are ideal options.
Trading in $10,000 increments reduces the risk associated with a trade. This way, novice traders can trade without running the risk of depleting their accounts with a single trade.
Mini accounts are also recommended for experienced traders who want to test new strategies before using them in their standard accounts. You can open a mini account with as little as $250 and as much as $500 while enjoying leverage of up to 400:1.
Have a risk management plan is the secret to successful trading in a mini account. This ensures traders can invest in multiple lots as a way of mitigating risks.
Since mini accounts are low-risk, the reward is also low. You can trade in 10,000-dollar lots for a dollar a pip with a mini account, making the profit margins low.
Managed online trading accounts
A managed account for forex trading is one where the trader allows a broker to make trading decisions on their behalf and only needs to place a deposit on their account. The account manager handles the account in the same way a stockbroker manages a stock account. As the account owner, you set the risk management plan and profit goals you want the manager to meet.
Managed accounts can be either pooled funds or individual accounts.
Individual accounts are privately managed as opposed to being included in a pool. A broker is expected to make trading decisions that best meet the account needs.
Pooled funds consolidate funds in a mutual account from different investors. After the money is invested, the profits are shared amongst the investors in one pull.