Forex or foreign exchange market is the over-the-counter market for conversion of currencies at a global level. With the help of forex, you can convert one currency to another or exchange the rates of each currency, no matter whether you are buying or selling currencies at the recent or determined prices. There are different forex account types for different types of traders.
But first, let’s understand what exactly foreign exchange is? Whether you are an individual, companies or a central bank, you will be able to convert currencies to the foreign exchange market. In case you have traveled abroad, you must have experienced exchanging currencies with forex transactions.
For instance, you have traveled to the United States and have Indian rupees rather than US dollars. You can go to the nearest bank or take the help of a forex broker to convert currencies on the spot, making your stay in the United States pleasing and unperturbed.
The forex market has gained a reach of trade, finance, and commerce around the world. Hence, the forex market is one of the largest and liquid asset markets in the world. Additionally, people prefer foreign exchange due to currency conversion to earn profits. Before you know about the various account types, let’s understand how currency markets and forex trading work.
How does the currency market work?
Basically, the global network of banks runs the foreign exchange market. Foreign exchange trading can be done 24 hours any day. Let’s look at the three types of foreign exchange markets.
- Spot forex market: As the name suggests, the spot forex market involves on-the-spot physical transactions or exchanges of currency.
- Forward forex market: With the help of forwarding forex markets, you can buy or sell a certain amount of currency at a specific price at a particular set date in the future.
- Future forex market: The future forex market is similar to the forward forex market when buying and selling a certain amount of currency at a specified price in a future set date, except that the contracts in the future forex market are legally binding.
How does the forex market work?
The forex market works similarly to any other market except that it mainly entails buying and selling of currencies. Usually, many forex brokers help customers in making forex transactions. Nowadays, you can use derivatives like CFD trading (Contact for differences trading) since online forex trading has increased tremendously.
What are the common types of forex trading accounts?
All forex account types have different deposit levels, and it also depends upon the size you want to trade. Let’s know about them one by one.
- Mini accounts or micro accounts: Mini accounts or micro accounts are appropriate for traders with small capital. To open this account, the minimum deposit is 100 dollars or less, and nano or micro lots is the limit to this trading account. It is appropriate for beginners since you can easily control the risk levels associated with the mini or micro account.
- Standard accounts: The standard accounts are referred to as ‘Classic’ or ‘Intermediate’ by some brokers, while others call them ‘Premium’ or ‘Gold’ accounts. Since the standard account is the broker’s regular offering, calling it ‘Premium’ or ‘Gold’ can be a little misleading. The minimum deposit for this account starts from 100 dollars to 500 dollars, and you will also get to trade mini-lots.
- VIP/Professional accounts: As per the name, many people believe that you need to be accredited for VIP accounts or Professional accounts. But that’s not the case; all you need is significant capital for this account. And the minimum deposit limit is 10,000 dollars, allowing you to trade standard lots.
Before opening a trading account, you must first determine the amount of capital you want to deposit. If you are a conservative trader, you can open a micro lot, and if you are an aggressive trader, you can opt for a standard lot.