A forex trading account is a trading platform which is used by forex traders to place buy and sell orders for currencies and financial securities using a brokerage based software. A Forex trading account gives forex traders the ability to make transactions and investment that will simplify forex trading and keep historical records of profits made, expenses and losses. It is operated with the use of high speed computers and network. They are three main forex trading accounts, namely:
STANDARD TRADING ACCOUNT
This is seen as the most common form of forex trading account. It gives forex traders access to standard lots of currency which is worth 100,000 dollar each. This doesn’t mean that a provision of 100,000 dollars is one of the basic requirement to trade with the standard account. No, a forex trader can trade this forex account with a minimum lot of 1,000 dollars while using the rules of margin and leverage.
The major advantage of using the standard trading account is the fact that forex brokers provides more service and good trading tools e.g. market analysis tools for traders since the trading account requires a huge amount of money to trade full lots. The disadvantage of using this account is that there high risk and loss potential. Example, if a forex trader can let go of 1,000 dollar in favorable moves, he can also lose the same amount in a 1,000 pip move.
MINI TRADING ACCOUNT
This forex trading account allow traders to make various trades using mini lots. It makes use of small amount of capital which is equivalent to 10,000 dollar. Forex Brokers who provides standard accounts can also provide mini accounts for traders who are beginners in forex trading with small startup capital.
The major advantage of using this type of account is that is requires a small capital of about 400 -500 dollar to begin and it is flexible in that is has high risk management scheme when compared to that of a standard account. The disadvantage is the fact that it attracts low reward or profit.
MANAGED TRADING ACCOUNT
This is a forex trading account in which trading decisions of what to buy and sell are made by the brokers and professionals but the money still belongs to the trader. Here, the trading goals are set by the trader while the broker meets the target.
The main advantage of trading with this forex account is that it gives room for a professional broker to handle most trading scenario in the account. Active time monitoring by the forex trader is not needed here since the broker monitors the market for great trading times. One major disadvantage of this trading account is that it requires a great amount of initial capital since it is managed by professionals. Another drawback is the fact that upon detection of a good opportunity to make a trade, the forex trader will have to wait for the broker to identify the opportunity.
STEPS ON HOW TO OPEN A FOREX TRADING ACCOUNT
CHOOSE A FOREX TRADING ACCOUNT TYPE
When a trader is prepared to open a forex trading account, the first step is choosing the type of account he/she want to operate with. The choice of the forex trading account being a personal account or a business account, a standard, mini or managed account should be closely determined. Choosing an account type is not difficult task since forex brokers allows the trade of custom lots. Custom lots option is a useful tool to inexperienced and new traders who have small investment capital. It provides the forex trader with flexible trading background by means of not trading higher capitals that is out of reach. Some a managed account can also give room for broker to trade the account for forex traders by making buy and sell decisions.
They are various forms to be filled and submitted and these forms vary from one broker to another. A paper work containing relevant data and information from the forex trader must be submitted. These forms are mostly given off in form of PDF format and can be viewed, filled and printed using Adobe Acrobat Reader software. It is very important to know all cost associations like what the bank charges for a money transfer look like. Most banks actually take up a lot of money from a forex trader’s capital.
FOREX ACCOUNT ACTIVATION
Once all the essential and necessary paper work have been submitted and received by the broker, an email is usually sent to the trader with valid instructions on how to complete the account activation. After the successful activation of the forex trading account, another email containing his username, password and guidelines on how the account should be funded will be sent. A log in step follows and proper trading can commence.