The process of trading currencies requires you to open an account with a broker. Signing up will need your email and personal credentials, after which you choose a portfolio to deposit your money. With the advancements in the fintech industry, the kind of available accounts has drastically increased. There is huge competition amongst different brokers depending on their offerings for traders. Designated portfolios are available for swing, scalper, and day traders.
Types of trading accounts
There were only standard accounts in the initial stages where the broker would charge commissions on the spread. Now we have mini, micro, ECN, etc., that offers specific features.
Standard
These accounts use standard lots equal to 100,000 units of the base currency. A single pip move for one lot would cause a change of $10 in equity. The floating spreads typically range from 1 to 2 pips on the EUR/USD pair as with most brokerages. Due to the variance between the bid and ask, news trading might be difficult. Leverage is widely available starting from as low as 1:25 to 1:3000, and execution speed is nominal.
Day and swing traders with sufficient capital widely use standard accounts. In some cases, there is an option to select a swap-free service within the portfolio that is perfect for those holding onto their positions for several months. The amount of liquidity is abundant.
Pros
- A good amount of margin is available for traders who like to leverage their executions.
- Nearly all brokers offer standard accounts with educational services, dedicated account managers, and bonuses.
- A standard lot can mean that your gains per pip are also significant. With a 1000 point shift, there is a possibility to make $1000.
Cons
- Traders with a high amount of deposit are liable to better services, leaving low equity participants a step behind.
- You can fund your standard accounts as low as $10, but it will expose your money to a considerable risk considering you are trading standard lots.
Mini and micro
Mini accounts depict 10,000 units of the base currency. A single pip change, in this case, will cause a $1 movement in profits. At the beginning of your trading journey, you may be recommended by pros to work on mini portfolios for a certain period. With the single lot size causing a less frequent change in the drawdown, the risk is significantly lower.
Micro accounts can even offer low risk as they represent 1000 units of the base currency. There will only be a change of $0.1 in the equity for a movement of 10 points or a single pip. Cent portfolios are also available, which allows traders to trade in cents rather than dollars.
Pros
- The mini and micro accounts are perfect for those looking to maintain extra-low risk on their portfolio.
- Beginners can learn how to trade on live portfolios rather than scanning demos.
- You can test EAs on live accounts with a small size and benefit from portfolio diversification.
- It can help you ramp up your trading calculations as the micro lot sizes are different from standard ones.
Cons
- You will hardly get any gains to earn a sufficient living.
ECN
ECN accounts are best for scalpers or expert advisors who use a rapid strategy in their trading approach. They offer zero to little spreads and follow a commission-based method in which the exchange charges a fixed cost per lot, usually around $7. As you have direct access to liquidity providers, the speed of execution is blazing fast.
Some brokers offer no dealing desk features with features similar to that of an ECN account. The execution quality is similar as there is no middle man involved.
Pros
- Real ECN brokers the fastest execution speeds, which are perfect for scalpers and EAs that use arbitrage.
- Offers lower costs on each trade. Fees are built into the commissions, and there is no spread in currency pairs.
- Brokers that make money by trading against their clients can not do so with ECN services.
- Trades go over directly to market players, and the exchange does not negotiate them.
Cons
- Some brokers may require a huge deposit from you to trade on Electronic Communication Network.
- There is a lot of manipulation by brokers on the name ECN itself. Some exchanges may claim to offer ECN accounts, but the speed of execution is standard, and you may experience slippage in the form of spreads.
What kind of trading account should I choose?
The type of portfolio that a trader should select depends on his equity, experience, objectives, and risk tolerance. If you are a beginner or looking for extra low drawdowns, micro accounts are the perfect option. Trading with a scalping method or using EAs that get in and out of the market quickly ECNs is the way to go. Standard accounts are better suited for regular traders who trade with big lots.
End of line
Be careful of market-making brokers who take the other side position of their clients. These exchanges make money as opposing the 90% losing rate means 90% win for them. You may find them hunting for traders with no trading experience as they are bound to lose. Ensure that top regulatory authorities regulate them as they impose heavy fines if they find the company is double-crossing investors.
