What Is A Forex Account And How Does It Work?

Holding a Forex account is one way to participate in the foreign exchange market. In this article, we will take a look at its definition and how it works. So if you’re curious about this type of investment, keep reading!

What is a Forex account?

A Forex account is the type of account you can use to trade foreign currency. You can trade most of the popular currency pairs, and some less common ones too. Typically, you deposit your money in your national currency, – and then use that money to buy and sell different currency pairs. Most forex accounts give you the ability to trade all major currency pairs and some emerging-market pairs.

How does a Forex Account function?

Nowadays, it is much easier to open a Forex account than it used to be. You just need to follow a few simple steps. 

First, you will need to find a Forex broker. All retail Forex trading goes through,- and is managed by, a brokerage company. Some may be specialized in Forex, or they might be the same brokerage you use for stock market investing and trading.

Up next is that you will need to fill out a questionnaire about your knowledge and trading intentions. You will also need to provide an ID and the minimum deposit that your Forex account institution requires. Once you have done that, you are free to trade.

Forex account types and their differences

We have highlighted 4 main Forex account types and the differences they have. Let’s have a closer look at each:

Forex demo account

Besides the forex account that was told above, there is a demo account that a lot of brokers offer. The only key difference between a demo account and a real one is that on a demo account you don’t need to trade your own money. Beginners who are not sure whether to start trading or not, use a demo account to improve their skills. But it can also be useful for the experienced. For example, if they want to change their trading strategy, but don’t sure about its effectiveness, they use demo accounts and try the strategy there without risking their own funds. Or, if a trader invests in one financial instrument for a long time but one day decided to change it, using a demo account and experimenting with another type of asset will be wiser than starting to trade on a real account. So always choose a broker that provides a demo account like Global GT is, – so that you will reduce the risks of losses and practice how much you want. 

Managed Forex account

A managed forex account is an account where a professional trader makes trades for you. They do this in return for a fee. People who don’t know a lot about foreign currencies can use this type of account to invest in this asset class. When people want to invest in foreign exchange but don’t specialize in trading, they might choose to use a managed forex account. The fee that you pay for a managed forex account depends on how much money you have in the account, and how often the professional trader makes trades.

Micro forex accounts

One more common type of Forex account is a micro account. This type of account is usually for beginner traders, but can also be used by experienced traders to test strategies. The main reason that traders open micro accounts is that it affords even small-scale retail traders the ability to trade like professionals. A prospective trader can buy and sell forex pairs the exact same way as anyone that is using a standard account,- but with a much smaller equity stake.

In addition, most micro accounts do not have minimum deposits, and, even if they do, it is usually a nominal amount, like $50. Less than this type of account is Forex cent accounts that are suitable to beginners as well. 

Mini forex accounts

A forex mini account is a great option for the ones who are an absolute novice in the field as well as working via NDD Forex brokers, which provides the connections directly between the trader and the market. 

This is because, with a mini account, the trader can only lose a limited amount of money. They have access to the same markets and tools as regular account holders. The only difference is that with a mini account, orders are placed in multiples of 10,000 instead of 100,000. This is an important distinction because it means that beginning traders can learn the ropes without having to risk a lot of money. It also means that they can get started with a smaller amount of capital.

Standard forex accounts

A standard trading account is the most popular type of account used by currency traders.  It is used by traders that have enough skills and understanding of the market. This account gives the user access to standard lots of currency each worth $100,000. That doesn’t mean that you have to put down $100,000 of capital to trade. The rules of margin and leverage (typically 100:1 in forex) mean that only $1,000 needs to be in the margin account for one standard lot to be traded.

Conclusion

The article introduced you to the Forex account, its importance, and its different types of it. As you see, each account type has its own benefits and drawbacks, so take your time to choose the one that suits your individual needs.