Forex brokers trade foreign currencies in the form of CFDs, allowing investors to speculate on the price movement of currencies. They do not provide exchange services – you must already have a bank account in a currency before trading it. Clients can open accounts with Forex brokers directly or through an online broker. The account type you choose determines what amount of leverage and trading hours you can access, as well as your exposure to credit risk.
Due to the many brokers and account types available, it is important to choose an offer that best fits your needs, including leverage offered by the broker and whether you are happy to trade on weekends. Find the best forex broker through ample research and understand their requirements prior to working with them.
Types of accounts
The two main types of accounts offered by Forex brokers – classic or standard accounts and ECN accounts.
- Classic or standard accounts – These allow clients to trade on the price movements of currencies during regular market hours, either Session (market open to market close) or Market-If-Open (24hours). These accounts are available from all brokers, and traders can open them for free. To trade in these accounts, the client must deposit a minimum amount of funds and be ready to accept market or price movements.
- ECN accounts – ECN (Electronic Communications Network) accounts are designed for spread-sensitive professional traders. They provide an opportunity to trade at any time, and leverage may be increased much higher than in classic trading accounts. However, these special conditions usually come with a substantial risk warning. The clients of ECN Forex brokers deal with liquidity providers directly, without an intermediary. Also, ECN accounts usually have a commission fee.
The margin is the difference between the deposited assets and the amount of leverage used. The Forex broker uses this margin to cover potential losses during trading. For example, if a client loses all their own deposits, they will be asked to pay for additional funds to maintain their position open or else have it closed automatically by their software.
If you want to avoid losing money due to market volatility or a volatile position, the best way is probably Margin Call Protection (MCF), which automatically closes an open trade when the margin level falls below a certain percentage.
Forex brokers mostly offer 24-hour trading where clients can trade from a set time of the day to another. This is why it is often referred to as “non-stop” or “around the clock” trading.
Minimum Initial Deposit
Every trader opening a Forex trading account must deposit at least the minimum amount of funds as specified by their broker. The initial deposit may vary depending on the type of your account. If you open an ECN or STP account, make sure that you have enough money in your bank account to avoid withdrawal problems.
Some brokers may have special conditions for trading in some of their account types, including commissions and margin requirements.