One of the first questions that a novice trader has is what type of account to choose for Forex trading? This question is no less relevant for experienced traders, since, as it turns out, the type of account largely depends on the chosen trading strategy. Brokerage companies offer a fairly large selection of account types for their clients. Thanks to this variety, it becomes possible to satisfy the needs of all investors and traders without exception. There are several types of Forex accounts, which differ in terms of trading. And not every type of account is suitable for one or another task that market participants may set themselves.
Let us give a brief description of the main types of accounts known in the most logical sequence.
Islamic accounts for conducting business in the Forex market have existed for a long time.
Countries where the dominant religion is Islam, like many other states of the world, consider the foreign exchange market as an effective tool for regulating foreign exchange policy and carrying out foreign exchange transactions in export-import transactions.
However, despite this, Muslim businessmen from time to time ask themselves a question – do they contradict the principles of Internet trading with Sharia or not? This question arises when Muslim entrepreneurs begin to look at the foreign exchange market not only as an opportunity to purchase the necessary currency at a more favorable price but also as a way to make a profit. Because of that a lot of Saudi Arabian Forex brokers as well as other countries where Islam is the dominant religion have come up with a concept of an Islamic account.
It should immediately be noted that in Muslim law, currency exchange is allowed by a hadith (saying, approval) that one can exchange certain goods for each other, but only in the same proportion and passing them from hand to hand. In other words, the exchange is allowed under one condition – there should be no gap in time when converting currencies and one party to the transaction should not have a debt to another party to the transaction.
As it becomes clear, Islam completely rejects usury, the essence of which is a break in time – a delay. Therefore, foreign exchange transactions carried out without deferred payment and at the market rate established at the time of the transaction are permissible from the point of view of Islam.
Consequently, currency exchange operations at banks and exchange offices are allowed.
But what about the Forex market, where most of the trading participants do not carry out conversion operations but pursue exclusively speculative goals? And in the process of conducting margin transactions, there is no real exchange of currencies. This means that there are elements of Gharar, Maysir, and Riba in the relations between market participants.
The very first type with which every novice trader should start the first steps in Forex is a demo account. Virtual money, but everything is almost real: the same charts, the same prices. You can open two platforms at the same time: one with a real one, and the other with a demo account and compare prices – everything will be the same. First of all, a demo account is needed by beginner forex traders in order to figure out how to trade on the Forex market. Once again it is a simulated environment where a trader trades like if he is in a real exchange.
It is enough to download the MetaTrader 4 trading platform from one of the brokerage companies to open a demo account in a few seconds. Most organizations register such a deposit almost instantly without the need to fill out any forms on the broker’s website.
In demo mode, a trader has the opportunity to acquire the necessary skills for further full-fledged work in the foreign exchange market, while not risking his own money, since trading in the training mode is carried out using virtual money.
This is the most widespread and popular account type. They offer the most maximum leverage, a variety of trading tools, and fixed spreads. With fixed spreads, it is much easier to calculate targets and get more accurate results when testing a strategy.
Trades on a standard account are not displayed on the interbank market. The counterparty for any trading operation is the broker’s other clients, or he himself. Therefore, one should not rely on constant accurate execution of orders. With high market volatility, there will be frequent requotes and rejected orders.
The minimum lot for this account is 0.01. With this lot, one point of price movement will be equal to approximately $ 0.1, which allows you to start trading with a deposit of $100 … 500. Stop loss and take profit can be set directly when opening an order, as well as after. It is great for trading on daily charts and intraday, non-aggressive trading. Where the number of transactions is relatively small.
This account will not work for scalpers. Given that scalpers open many short-term traders, the execution delays present on this account, and the spread will take most of the profit. All this will affect the trading results and it will naturally be unprofitable.
There are other types of accounts such as ECN accounts, cent accounts, PAMM accounts but it should be said that none of these accounts enjoy such huge popularity as these three ones.