Probably the most important account for all beginner traders. The demo account simulates a live trading account in terms of pricing, allowing newbies to get accustomed to the platform and make any mistakes without having to pay a price. Also, it allows traders to test out their new trading strategies before deploying it on a live account.
However, bear in mind that although a demo account is considered a replica of a live trading account, there are still some features that a demo account cannot replicate such as the incurrence of commission/swap charges and spread difference. Also, demo accounts offered by some brokers may come with a trial period.
A standard account varies from brokers to brokers. It is usually the “plain jane” account with little to no additional benefit unlike the other account types that will be mentioned below. As such, the standard account is readily available for traders of any level and any funding amount.
3) Electronic Communications Network (ECN)
When a trade is placed through an ECN account, the ECN system matches that buy or sell order with other retail traders, brokers and liquidity providers, giving traders direct access to the interbank market. Thus, no middleman is required for orders to be matched.
Brokers offering ECN account do not depend on bid/ask spread markups to generate revenue. Because of this, they charge a commission on every order being placed. With the absence of spread markups, traders benefit from tight spread (sometimes zero) when trading during normal market conditions. This makes ECN accounts very favorable for scalpers since they normally profit from a small amount of pips in a short time, thus allowing them to achieve success easier. Note that during major economic or political news releases, it is still possible for spread to widen.
One drawback of an ECN account is that the broker offering it will usually require the trader to come in with a higher amount of deposits. Since the typical “as low as $100 to start trading now” slogan does not apply to ECN accounts, it is usually out of reach for beginner traders.
4) Straight Through Processing (STP)
An STP system sends the trader’s order directly to different liquidity providers in the interbank market. The system will then pick the best bid and ask price from different liquidity providers. As opposed to the ECN system whereby there is no spread markups, the broker offering STP accounts will add a markup to the bid/ask price, thus widening the spread before finalizing the price for the trader’s order. For that, the broker usually charges a lower or no commission. Also, an STP account does not require the trader to fund a high amount of deposit.
5) Islamic Account
An Islamic account, often known as a swap-free account, adheres to the following four principles:
1. No paying or receiving of interest
With the prohibition of paying and receiving interest, trades held overnight will not incur any swap gains or charges.
2. Trading operations have to be immediate
Forex trading is immediate at the click of a mouse button.
3. No gambling
Gambling in Islam is prohibited. Although many consider Forex trading to be a form of gambling, it is actually a form of investment that requires economic, political and market analysis.
4. Risks and benefits have to be distributed
Distribution of risks and benefits is fulfilled through the profit and loss one incurs while trading since a trader’s loss is another trader’s gain.
To conclude, this article provides a general comparison of the common types of Forex trading accounts. Bear in mind that the same type of account offered by different brokers may have different configurations. Areas to take note of are commission and swap charges, types of spread (fixed or variable), leverage and margin requirements, negative balance protection and minimum trading lot size.
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