Forex is the largest market for trading right now. According to Daily Forex, forex trading has grown by more than $5 trillion since 2001. A few years ago, it was considered worth $2.4 quadrillion. The biggest players are banks, hedge funds, and global companies, but in recent years, individual investors have also started to get involved.
Getting into the foreign exchange market is difficult and comes with many risks. A survey found that 37% of traders either make or don’t lose money. You need to have a brokerage account to trade in this way.
Even though it’s the most common trade method, the Standard FX account is best for experienced traders. A currency lot can be worth up to $100,000 with a standard account. But a trader doesn’t have to put down $100,000 to get started. Instead, you should follow the rules for margins and leverage.
Since you need between $2,000 and $10,000 to open one of these accounts, brokers will give you more perks and services. Also, a pip is worth $10 in a standard account. You can make or lose a lot more money if a position moves. Find the best forex brokerage firms for 2022 on Brokersview, so your money is in good hands.
Mini & Micro
The best accounts for new traders to start with are mini and macro. A currency lot in a mini FX account is worth $10,000, and a pip is $1. Capital needs range from $250 to $500, and the account can use up to 400:1 leverage.
Even more, options are available with a micro account with lots worth $1,000 and pips worth $0.10. A micro FX account can be opened with as little as $25. This is a much safer way to trade than with a standard lot, which needs more money upfront. But with minimal risk comes little reward.
With a managed FX account, you can trade foreign currencies without dealing with them yourself. The money you put in and the money you make are both yours, but experienced forex brokers make the decisions.
There are two basic kinds of managed accounts:
- Pooled: This is a mutual fund owned by more than one trader and run by a broker. A pooled fund’s risk/reward ratio can be high or low.
- Individual: You are the only owner of this account. In this case, the broker puts your needs first instead of the needs of the majority, as they do with pooled funds.
Traders usually need between $2,000 and $10,000 to open a controlled account. This amount varies based on the situation. The broker also takes a monthly or yearly fee to keep the account going. The main benefits of controlled FX accounts are that you can get professional help and don’t have to keep up with market trends. But you could hire an inexperienced or undependable broker, so do a lot of research before you open an account.
It’s not strange for a broker to offer regular traders a VIP FX account. But there are several things you require to do before you can open a VIP account. An essential one is that you must put down a big sum, usually between $50,000 and $100,000. But you get more perks and better treatment. Among the most common things a VIP account comes with are the following:
- A client manager and enhanced market intelligence
- Better customer support
- Less money in commissions
- No account limits
- Invitations to webinars and events for FX trading
- Accounts are handled faster
- Extra money and prizes
- No fees to withdraw
Some FX trading rules are the complete opposite of Islamic law. Brokers began offering special Islamic FX accounts so Muslim traders could trade without going against their religion. An Islamic FX account meets the four rules of Islamic finance:
- Interests should not be part of any deal;
- It is illegal to gamble;
- Exchanges should happen right away;
- Risks and benefits should be spread out evenly.
Instead of paying interest, a trader pays the dealer commission and admin costs, which technologically doesn’t go against the Sharia.
Demo FX accounts let new traders try the market before getting into it. Here, you trade with fake online money. But you won’t be able to use all of the features with a demo account. Still, you can trade without losing anything if you use a demo account. It’s a great choice for FX traders who are just starting and want to learn more about the market before putting real money on the line.
Which Is the Most Effective?
There are pros and cons to all types of FX accounts. Ultimately, your selection should depend on how much you know, how you trade, and how much money you have. For example, a mini or micro account is a good place to start for new traders. Once you get better at trading, you can swap to a standard account and work up to a VIP account.