Gone are the days where brokers offered only standard accounts. Over the years, as clients’ needs have increased and firms became more innovative, the number of account alternatives is now diverse.
While a standard account is still a prevalent option for many, it’s not an appropriate choice for some. For instance, the purpose of a nano account is permitting nano lots – a position size not found on the standard option.
This allows cash-strapped or newer traders to execute smaller positions than usual, which is beneficial and increases their risk steadily rather than blowing up too soon. This article will detail six of the most common trading account types and how each of them functions.
1. Standard
As briefly mentioned, a standard account is a popular choice available with virtually all brokers. While the name might suggest otherwise, the minimum lot size on this option is from micro (0.01), which is usually 1 000 units of the base currency.
Therefore, this account is not limited to just trading standard lots only. This option is a no-frills account offering competitive floating spreads, leverage starting from 1:50, and minimum deposits from $1 in a few cases.
Of course, the leverage with most standard accounts can be a lot higher, while some brokers might require at least $100 for starting capital. A standard account is always available in a demo version, allowing broker’s potential clients to test the general trading conditions.
2. Nano
A nano or cent account allows a trader to open nano lots, typically 100 units of the base currency or 0.001. Most will also allow bigger positions up to a standard. Very few brokers offer this solution because there is less of a financial incentive for them since they expect lower deposits than normal.
Nonetheless, it’s beneficial for a few reasons. For starters, it is great for beginning or newer traders who are transitioning from the demo stage to get their feet wet without a sizable financial commitment.
The more experienced traders can also benefit from this alternative as they can test new strategies and expert advisors in a real environment without risking too much capital.
The trading conditions on the nano aren’t so different from the standard ones. A possible difference may be lower leverage. Also, the cent account might not be available in a demo version on most trading platforms.
3. Zero spread
A zero spread account is another increasingly suitable choice among forex brokers. Technically, the spreads here don’t start exactly from zero but are generally fixed and cheaper than on a standard account – this is the main benefit.
Brokers will apply a small commission for every round turn or for every time one opens and closes a position. The primary reason anyone would consider such an account is to enjoy more predictable trading costs that are sometimes not possible on a standard account.
With the latter, spreads can widen erratically, especially during busier periods. It’s not to say spreads don’t increase on the zero, though the impact is not as severe. Therefore, it’s not necessarily that zero spread accounts are cheaper in the long run, but they are on a trade-by-trade basis. And they are also more predictable.
Zero spread accounts are best for high-frequency traders, those using expert advisors, and generally anyone who prefers calculable trading costs. The minimum deposit on such an account is slightly higher than usual: it typically starts from $200, with some brokers requiring at least $500. The zero spread account is rarely available as a demo account.
4. VIP
VIP or premium accounts are reserved for wealthy clients affording massive large trading capital and volume. Typically, the minimum deposit can start anywhere from $10,000 to $50,000 or even more.
Nonetheless, VIP account holders enjoy some of the following benefits:
- Free VPS (Virtual Private Server)
- Dedicated private account manager
- Lower commissions
- Express withdrawals
- Lower margin close-out percentage
- Higher leverage
- Special events and seminars
To maintain the VIP status, traders need to satisfy a minimum number of lots monthly. Some brokers may also go through a vetting process involving some form of quiz looking at a client’s income, net assets, and work experience.
5. Islamic
An Islamic or swap-free account is geared towards Islamic traders or clients whose faith is Islam. The purpose of such an account is there are no incurred swaps, which is the interest one pays or is credited with for holding positions overnight due to interest rate differences between currencies.
Islamic traders are exempt from paying and being credited swaps as this goes against Sharia law, where the accumulation of any interest is prohibited. In some exceptional circumstances, some brokers might offer this option to non-Muslim clients, but it is totally at their discretion.
The minimum deposits are usually the same as with a standard account, and the trading conditions remain the same.
6. Managed
Popular managed accounts in forex are PAMM (Percentage Allocation Management Module) and copy trading. While some nuances prevail between the two, they operate similarly and aim to achieve the same goals.
They involve a platform where the trades of a chosen ‘money manager’ are copied onto an investor’s account. The latter neither have to perform any active positions themselves nor need any knowledge of the markets.
Managed accounts are passive investments for non-active traders leveraging off the skills of more experienced traders. The ‘money manager’ will receive a form of commission from any profits they make for their users.
PAMM has different capital requirements depending on the broker and account manager, while copy trading is much more flexible where some platforms accept as low as $10.
Final word
As we can see, there are several types of accounts catering to the ever-growing needs of traders. Whether someone has little or a lot to invest in or prefers a passive investing style, there is something for everyone.
Although differences are present across the board, the potential risks of loss don’t change drastically, which is vital for choosing any of these options.
