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Which account type is right for you?
Written by: PaxForex analytics dept - Tuesday, 17 March 2015 0 comments
When you conduct you research on different account typesyou will see that there are quite a few to choose from and every broker has a range of different account types which forex traders can pick from. Many new forex traders simply pick the biggest account available and do not send more time on selecting the right trading account for them and their deposit size. This is a very big mistake as there is a reason why more than one account type is offered.
Trading in the right account type can increase the performance of your forex portfolio and translate into more consistent profits. There are three main account types which you need to be aware of: the standard account, the mini account and the micro account. The two biggest differences between all account types are deposit size; some brokers do not put a difference in deposit size, and the amount of capital each pip move stands for.
Let’s start with the standard account. This account is for traders, professional traders as well as institutions, with a functioning trading strategy and sufficient trading capital. This account type should be used for deposits above
$25,000. The main reason for this is that in a standard account 1.0 lot means that you are trading 100,000 units of your selected currency pair which means that a 1 pip move is equal to $10.
A 30 pips move would equal $300 which means that if you only trade one currency pair at the time with 1.0 lot you would need to have $15,000 in your account unless you want to risk more than 2% per trade. Even trading a lot size of only 0.10 in a standard account would translate to a loss of $30 for 30 pips and an account size of $1,500 would be the minimum in this example. This does not allow a forex trader to properly manage a forex trading account and therefore a standard account is not suitable for most traders.
A mini account is the much better choice for the majority of forex traders. In a mini account 1.0 lot is equal to 10,000 units of the currency pair you wish to trade and a 1 pip move is equal to $1 or 30 pips equal $30. Trading 0.10 lots means that 30 pips now only account for $3 and a forex trader can enter more positions and not rely on one single trade only. In a micro account 1.0 lot equals only 1,000 units and 1.0 pip is equal to $0.10 while 0.10 lots translate to $0.01. This account type is for very small deposits only and not recommended. So which account type is right for you?