A Forex account must be set up in order for you to trade Forex. These type of accounts are referred to as margin accounts. The minimum margin is the amount of money you need to have in your account to trade a Forex contract, also known as a "lot".
Think of the margin as a "good faith deposit". You put money in your Forex brokerage account and your Forex broker allows you to trade a Forex contract. The Forex contract has a dollar amount of far greater value than the amount of money you are required to have in your account. For example, a standard EURUSD (Euro Dollar/US Dollar) contract has a value of $100,000. The amount required to trade this contract is generally around $1,000. This gives you leverage of 100:1. Leverage is one of the key reasons traders open Forex accounts.
Please bear in mind that the leverage available in Forex is a double-edged sword that can work against you as well as for you. You can profit or lose very quickly trading Forex. This is true of all highly-leveraged financial contracts. This is one of the reasons you will see a risk disclaimer associated with every Forex account.
Here are some of the typical Forex accounts you will encounter:
Forex Demo Account
A demo account has virtual cash in it usually up to $100,000. Using a demo is a great idea and allows you to familiarize yourself with your broker’s trading software. You can practice as much as you want without any financial risk.
Forex Micro Account
A micro account is a smaller version of a standard account. You can open a micro account for as little as $25.
Standard Forex Account
Standard accounts require your initial deposit to be at least $2,000. If you do not have experience in Forex trading I would strongly suggest that you open a micro account first. Once you see that your trading methods are stable and profitable you will feel more comfortable about opening a standard.
Speak Your Mind