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Types of trading accounts


Foreign-exchange (forex) trading consists of buying and selling world currencies, and the marketplace is among the most liquid in the world. Forex trading is unique because individual investors can compete with large hedge funds and banks—they just need to set up the right account.

There are three main types of trading accounts—standard, mini, and managed—and each has its own advantages and disadvantages. Which type of account is right for you depends on your tolerance for risk, the size of your initial investment, and the amount of time you have to trade on a daily basis.

Key takeaways

Standard Trading Accounts

The standard trading account is the most common. This account gives the user access to standard lots of currency each worth $100,000. That does not 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.

The Pros

The Cons

Mini Trading Accounts

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 offering 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.

The Pros

The Cons

Micro accounts, the sister account to the mini, are also available through some online brokers. These accounts trade in $1,000 lots and have pip movements worth 10 cents per point. These accounts are typically used for investors with limited foreign exchange knowledge and can be opened for as little as $25. (Read "10 Things to Consider Before Selecting an Online Broker" before making your investment.)

Managed Trading Account

Managed trading accounts are forex accounts in which the capital is yours but the decisions to buy and sell are not. Account managers handle the account just as stockbrokers handle a managed stock account, where you set the objectives (profit goals, risk management) and the managers work to meet them.

There are two types of managed accounts:

The Pros

The Cons

The Bottom Line

No matter what account type you choose, it is wise to take a test drive first. Most brokers offer demo accounts, which give investors an opportunity to use an account risk-free and try out different platforms and services.

As a basic rule of thumb, never put money into an account unless you are completely satisfied with the investment being made. With the different options available for forex trading accounts, the difference between being profitable and ending up in the red may be as simple as choosing the right type of account.


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