Trading in the forex market is conducted primarily through brokers. The first stepping stone for all the people who wish to participate in the forex market is selecting a reliable, ethical broker from the numerous brokerage houses offering forex trading serviced. Once you have finalized a broker, the next step is to open an account. Brokers usually offer several types of accounts, with each of them appropriate for different deposit sizes and margin requirements.
It is important that the forex traders consider what they want to get out of their account before deciding on the type to open. There are many different types of forex accounts available to the retail forex trader. Demo accounts are offered by forex brokers as a way to introduce traders to their software and execution methods. After the trader has tried out demo accounts a funded trading account would be the next step.
Brokers generally have different account types, all of which vary in lot sizes, minimum deposit amounts and margin requirements. The extent of your transaction size would largely depend on the type of account you have opened at your broker. There are three main types of trading accounts - standard, mini and managed - and each has its own pros and cons. Which type of account is right for you depend on your tolerance for risk and the size of your initial investment.
The standard trading account is the most common account. Its name derives from the fact that you have access to standard lots of currency, each of which is worth $100,000. This doesn't mean that you have to put down $100,000 of capital in order to trade. The rules of margin and leverage (typically 100:1 in forex) mean that only $1,000 needs to be in the margin account for one standard lot to be traded. With each pip being worth $10, if a position moves in your favor by 100 pips in one day, your gain will be $1,000.
A mini trading account is simply a trading account that allows traders to make transactions using mini lots. In most brokerage accounts, a mini lot is equal to $10,000, or one-tenth of a standard account. Most brokers that offer standard accounts will also offer mini accounts as a way to bring in new clients who are hesitant to trade full lots because of the investment required. One feature that makes this account popular is its low minimum deposit amount. While the exact minimum amount varies among brokers, you can open the account and start trading with as little as $200 in deposit.
Managed trading accounts are forex accounts in which the capital belongs to the investor/trader, but the buy and sell decisions are made by professionals. With the managed accounts the minimum deposit requirement is usually around $10,000. When you have managed trading account, you do not need to spend hours studying, assessing and actively trading in the market. Your broker assigns a professional trader to your account, who uses your money to trade and try to earn profits from numerous opportunities. You can choose the account that best meets your requirements so as to try and maximize your profits.
