The biggest trading market of today is forex (also known as FX or foreign exchange). According to the Daily Forex, since 2001, forex trading has increased by over $5 trillion and had an estimated worth of $2.4 quadrillion a few years ago.
Banks, hedge funds, and multinational corporations are the major players, although individual investors are also entering in recent years.
Getting into the FX trade is not easy and involves significant risks. A survey showed that 37% of traders make a profit or break even. To trade this way, you need a brokerage account. But which type will suit you best?
Read below to discover the forex trading account types you can use in 2022.
Even though it’s the most common form of trading, it’s best only to use the Standard FX account if you are a seasoned trader.
With standard accounts, a currency lot is worth up to $100,000. However, a trader doesn’t need to put $100,000 to start a trade. Instead, follow the margins and leverage rules. Since these accounts require capital from $2,000 to $10,000, you will get more perks and services from brokers.
Plus, in a standard account, a pip (percentage in point) is worth $10. This means you can have bigger gains if a position moves, but it can bring bigger losses too. To put your capital in the right hands, discover the best forex brokers for 2022 on Brokersview.
Mini & Micro
The best forex trading accounts for beginners are mini and macro. With a mini FX account, a currency lot is worth $10,000 and a pip $1. The capital requirements vary from $250 to $500, and the account has a leverage of up to 400:1.
A micro account is even more flexible, with lots worth $1,000 and pips worth $0.10. Plus, you can start a micro FX account with as little as $25. This is much safer than trading one standard lot, which requires more capital upfront. However, with low risk comes low gain.
A managed FX account allows you to trade foreign currency without getting involved. The invested capital is yours, along with the gains, but the decision-making is left to experienced forex brokers.
There are two types of managed accounts:
- Pooled – This is a mutual fund owned by multiple traders and managed by a broker. A pooled fund can have a high or low risk/reward ratio.
- Individual – This account is owned solely by you. In this situation, the broker prioritizes your needs instead of the majority’s, as in pooled funds.
Depending on the situation, traders typically need $2,000 to $10,000 to open a managed account. In addition, the broker takes an account maintenance fee, either monthly or yearly.
The main advantages of managed FX accounts are that you get access to professional expertise and don’t have to follow market trends. However, there is a risk of hiring an amateur or unreliable broker, so do thorough research before making an account.
It’s not unusual for a broker to offer a VIP FX account to regular traders. But to open a VIP account, you need to satisfy certain requirements. The most important one is that you need to deposit a large amount that typically varies from $50,000 to $100,000.
However, you get special treatment and more perks. Some of the most common features that come with a VIP account are:
- An account manager and more market insights
- Better customer support
- Lower commissions
- No account limit
- Invitation to FX trading events and webinars
- Faster account processing
- Bonuses and rewards (loyalty points, gifts, promotions, cash rebates)
- No withdrawal fees
Some of the principles of FX trading are a direct opposite of Islamic law. To allow Muslim traders to operate without going against their faith, brokers started offering special Islamic FX accounts.
An Islamic FX account satisfies the 4 Islamic financial principles:
- No deal should involve interests;
- Gambling is prohibited;
- Exchanges should be immediate;
- There should be an even distribution of risk and benefit.
Instead of paying interests, a trader pays the broker commission and administrative fees, which technically doesn’t go against the Sharia.
Demo FX accounts allow beginners to test the waters before entering the real market. Here you trade with virtual fake currency. However, a demo account won’t give you access to all features.
Nonetheless, with a demo account, you can participate in trades without losing anything with a demo account. It’s a great option for beginner FX traders who want to gain experience and learn more about forex before investing real capital.
Which Is Best?
All types of FX accounts have their pros and cons. Ultimately, your choice should depend on your experience, trading style, and financial situation.
For example, beginners should start with a mini or micro account. Once you get more comfortable trading, you can switch to a standard one and eventually reach the VIP.