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Home Finance Forex Trading Essentials: Getting Set Up

Forex Trading Essentials: Getting Set Up

Now, let’s discuss everything you need to know regarding setting up your account!

Forex trading involves buying and selling currencies around the world. Do you know what makes forex trading unique? This system enables an individual investor to compete with large funds and even banks. The only thing any investor needs is to set up an appropriate account.

For your information, there are three main types of trading accounts:

  • Mini Account

  • Standard Account

  • Managed Account

Each of the above accounts has its own pros and cons. The right type of account for you will be dependent on the tolerance for risk, amount of investment, and amount of time you are going to spend on a daily basis on trade.

Significant Takeaways

Let’s have a look at some of the important takeaways that you should keep in your mind during forex trading account setting are:

  • Planning to start trading in forex markets? For this, you have to pick the best account that will be best for you in terms of skill, experience, and knowledge.
  • One of the common accounts is a standard account. It comes with 100:1 leverage. It goes up to $100,000 in value.
  • Mini accounts will minimise the max lot size to $10,000. This is best for beginners, risk-averse traders, and people with limited funds.
  • For the people who possess a professional portfolio manager making trades, a managed account will be worth the extra fees.

Let’s dive into the pros and cons of three different types of accounts listed above:

1. Standard Account For Trading

It is one of the common accounts. This type of account will be providing access to users for standard lots of currency with a value of $100,000. This doesn’t mean that you have to invest $100,000 in total value to start trading.

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Pros

Service: As the standard account needs proper up-front capital for trading the full lots, the majority of the brokers will offer more services and better perks for single investors who want this type of account.

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Gain: With every amount of pip $10, if a position is going to move to 100 pips in a day, the gain is going to be $1000. You are going to gain with only this type of account unless more than one standard lot is being traded.

Cons

Requirement of Capital: The majority of brokers want standard accounts to have a minimum balance of $2000. In some cases, it should be between $5,000 to $10,000.

The Margin of Loss: As you have the chance of getting $1,000 if a position is going to move up, there is a possibility that you can lose $1,000 if 100 pip moves against you as well. This loss will be huge for an inexperienced trader with a minimum investment in the account.

2. Mini Account For Trading

The next account on our list is the mini account. This account enables the traders to do a transaction using mini lots. In the majority of the brokerage accounts, a mini lot will be equal to $10,000 or to the one-tenth of a standard account.

Note that, majority of the brokers who offer standard accounts, do offer mini-accounts as well as a way to bring in new clients who are hesitating to do trading of full lots due to the required investment.

Pros

Less Risk: By trading $10,000 increments, it gives the opportunity to an inexperienced trader to do the trading without affecting their account. Whereas, experienced traders can test out new strategies without risking their huge capital.

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More Flexibility: For success in trading, a risk-management plan is very much important and you have to stick to it as well. With the help of mini lots, things are easy to do because if one of the standard lots is very risky, you can consider buying five or six more mini lots. This will minimise your risks.

Low Capital Needed: The majority of the mini-accounts can open with a value of $250 to $500. This account comes with a leverage of up to 400:1.

Cons

Minimum Reward: As you have low risks involved in this account so the reward will be less as well. The account that will trade $10,000 lots will only produce $1 per pip of movement in comparison to a $10 in case of a standard account.

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This type of account is best for the beginner forex trades or for the people who are looking to do experimentation with new strategies.

3. Managed Account For Trading

In this account, the investment is yours, but the decision of buying and selling is made by another person. Account managers are going to handle your account similar to the way in which a stockbroker handles a managed stock account. Here you will set your objectives (risk management and profit goals), and the managers will try to meet all of your goals.

For your information, there are two types of managed accounts:

Pooled Funds: Your investment is going in a mutual fund of other investors, and the profits will be shared. These accounts are categorised as per the risk tolerance.

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Individual Accounts: A broker will be handling your account. He will be making the decision for each investor in comparison to a situation of a combined pool.

Pros

Guidance from Professionals: A professional forex broker will handle the account.

Cons

Flexibility: If you see the market moving, you will not have the flexibility to place a position. You will be totally dependent on your account manager to make the right decision. This account is best for those investors who have huge capital but no time or no interest to follow the market.

Price: Most of the managed accounts will need a minimum amount of $2,000 for pooled accounts and $10,000 for individual accounts. Furthermore, the manager will also keep a commission that is called the “fee for account maintenance.”

The Final Pick

Irrespective of the fact that what type of account you are going to pick, it will be best to take a test drive before starting anything. The majority of the brokers will provide you demo accounts. This will offer the investors an opportunity to use an account risk-free. The investor can test different services and platforms.

About Author:

Maryam Rafi has been working as a freelance content writer and have extensive experience in article and blog writing. She is a strong advocate of big dreams and believes in making them true. She works with B2B and B2C businesses for copywriting, article and blog writing services. She loves to write articles about marketing, business safety, entrepreneurship, fashion, health, health, fitness, and many more.

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