Online Forex trading is an internet-based money making investment where traders can buy and sell currency pairs through a computer or mobile device application. Online forex trading makes it possible for traders to compete with larger financial institutions like banks and hedge funds to trade currency pairs for profit. All a trader needs is to create a suitable trading account on a preferred platform.
If you are thinking about taking up online forex trading, a simple MetaTrader 4 download will give you access to one of the most reliable and trustworthy forex trading platforms today. To make the most of your forex trading online, you need to choose the best account for your trading needs.
Online trading accounts
Generally, there are three types of online trading accounts to choose from. These are:
- Mini accounts
- Standard accounts
- Managed trading accounts
Each of these accounts has benefits and limitations. The right account for you depends on the amount of time you plan to spend online trading forex, your risk tolerance, and the size of your investment.
Mini online trading accounts
This type of online trading account allows traders to use mini lots when transacting. In most online trading platforms, the mini lot is worth $10,000. Most brokers looking to attract novice forex traders to their platforms avail mini account options since they are famous amongst new traders who are cautious about trading full lots.
The benefit of a mini lot is that it limits your trade to $10,000. Trading in $10,000 increments reduces the trading risk, therefore preserving most of your bankroll. With this account, novice traders can comfortably trade forex online without risking wiping out their accounts on one trade.
Mini accounts can also be ideal for experienced forex traders interested in testing new strategies. They use mini accounts the same way novice traders use demo accounts. This way, they get the chance to tweak their strategy before using them in their standard accounts.
It is possible to open a mini forex trading account with as little as $250 and as much as $500 with trading leverages of up to 400:1.
The secret to trading forex successfully in a mini account is to have a risk management plan in place. This gives you the chance to invest in multiple mini lots to mitigate trading risks.
It is important to note that mini accounts are low risk accounts. This means that the reward is also low. While it is possible to trade in 10,000-dollar lots for a dollar a pip with a mini account, the profit margins can be very low. This makes it the best introductory account to learn the trade but not the best when you need to make reasonable profits.
Standard online trading accounts
Standard accounts are the most common types of forex accounts used by traders. With a standard account, a trader gets access to currency lots of as high as 100,000USD. The best part is that the rules of leverage and margins for a standard account allow traders to place low priced offers from $1000 on their accounts to buy into a 100,000USD currency market.
The greatest benefit of owning a standard account is that you get access to better benefits from brokers and the account comes with better services. This is mostly because standard accounts require an upfront capital for one to start trading on it.
For instance, a pip worth 10-USD on a position that moves by 100 pips can easily earn $1000. This kind of high margin gain is only found with a standard account. The only way to make as much using other accounts is to trade more than one lot at a time.
The only reason that discourages most traders from using a standard account is its high deposit requirements. As a trader, you need to have a minimum starting balance of at least $2000, with some platforms requiring as high as $10,000 to open the account.
It is important to consider an account’s loss potential. While it is possible for a standard account to make a thousand dollars in just a move, it can also easily lose $1000 when a position moves against your trade. This high risk potential is what makes standard accounts unsuitable for novice traders.
Managed online forex trading accounts
A managed forex trading account is a type of account where a trader gives the broker authority to trade on their behalf. The trader only needs to ensure the account has the minimum required deposit to trade. The broker handles the account the same way a stockbroker manages a stock account.
The account owner sets the risk management plan and profit goals for the broker to meet. Managed trading accounts can either be individual accounts or pooled funds.
Individual accounts are privately managed for one portfolio while a pooled account is used to manage several portfolios for different traders. Regardless of the type of managed account you have, the broker is expected to make wise trading decisions to meet the needs of his clients.
Choosing the right trading account for your forex trading needs has a direct impact on your investment. Ensure you take time to understand the benefits of the three accounts to choose the best one for your needs.