When you plan to trade online, the account type you choose is one of the important decisions that you will have to make. That is due to the fact that each forex account has different features which can have an impact on your trading strategies. With so many forex accounts to choose from, I will take a look at some of the key things to consider in order to help you choose the best forex account for your needs.
Choosing the best forex accounts
The main differences between forex account types will be the minimum deposit, spreads, commissions, leverage, platforms and instruments offered, execution model and account benefits. Hopefully by the time you have finished reading this article, you will have a good idea about which is the best forex account for you.
Each forex account can require a minimum initial deposit. Some brokers offer trading accounts from a deposit of just $1 whereas others can require $500 or more. It may be worth shopping around for an account type that meets your budget as well as your technical requirements.
The spread is the difference between the bid and ask price which you pay your broker for the trades that you place. Each forex account will usually have fixed or variable spreads. Variable spreads depend on the interbank rates and can generally be lower. They will usually however also be a commission charge in addition to a variable spread. Fixed spreads are usually higher as they have a mark-up to compensate for the fact broker will often not charge a commission in addition to a fixed spread.
The spread type that you choose can depend on your trading strategy. Those who are scalpers will most likely need the variable spread account as their trading strategies can be very spread dependant. Swing traders may not be so concerned with spreads and thus could consider both options.
Some forex accounts can also incur a commission charge which is a price that you pay your broker for placing a trade using their service. The lower the commission, the more you can save on trading costs in the long term. Some forex brokers even offer commission free accounts but will usually mark-up the spreads to compensate for this. The best forex brokers should have tight spreads and low commission fees.
Leverage allows you to trade a position size greater than you would be able to without it. Whilst this can increase potential profits, it can also increase losses. Thus, it is imperative you understand the significant risks involved with trading leveraged positions. That being said, if you need a specific leverage size, you should check that the forex account you are considering offers that leverage. E.g. an account with 1:30 leverage would allow you to open a $30 position size with $1.
Sometimes forex brokers can offer different platforms for each account type. Whilst most will offer the popular MetaTrader platform on all accounts or their own proprietary trading platform, more specialised platforms may require a specific account. If there is a particular trading platform that you would like to use, you should ensure it is available on your chosen account type.
In addition to forex currency pairs, a trading account with a broker can also provide access to other tradeable instruments such as stocks, commodities, indices, precious metals, energies, cryptocurrencies, bonds, ETFs, etc. If you want to trade other markets, you should choose an account type that offers them.
There are a few different execution models that are worth being aware of. These include ECN broker model, STP execution model and market maker model. Generally speaking, an ECN broker is likely to have the more favourable trading conditions followed by the STP and then the market maker. Whilst this is a generalisation and not always the case, market maker brokers can take the opposite side of client trades and thus, some believe there is a conflict of interest.
In contrast, an ECN/STP brokerage should put your trade request directly through to the liquidity providers for execution at the best possible prices with minimal slippage. I would always personally prefer to use an ECN forex broker as I find they tend to have tighter spreads and reliable execution speeds. You can read my article on the best ECN forex broker for more information.
Sometimes a broker will offer added benefits for those with larger account sizes. I prefer it when traders of all levels get the same features but if there is a particular benefit that you require, you should check your account type qualifies for it. Added benefits can include daily market analysis, webinars, seminars, educational materials, trading tools, discounted commissions, etc.
Forex brokers can also offer free demo trading accounts which can be useful if you are a beginner and would like to practice trading online with virtual funds until you become confident enough to open a real account. Some brokers also provide Muslim friendly accounts which are swap free and thus comply with Sharia law.
Best forex accounts summary
You should now have a clear understanding on the different types of forex trading accounts available and what to look for when trying to establish the best forex account for your trading needs. If you would like some inspiration, please feel free to check out my best forex brokers, all of whom offer a variety of account types to cater to different trading styles.