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Chris Bell

Forex basics: types of brokerage accounts

Types of trading accounts can vary wildly from broker to broker. Whether cash or margin accounts, accounts for private or professional traders, the best choice is not always obvious. Here we explore some account options, including some broker-specific “VIP” or “Gold” accounts.

Accounts for retail traders

Overall, retail traders are individual traders who do not have direct work experience in day trading. They often rely on the knowledge and education gained from brokerage sites. Most retail traders trade with their own money and can trade various trading instruments, such as stocks, currencies, or stock indices.

When it comes to the various trading accounts available to individual traders, it is essential to find the most suitable online broker.

A good starting point in your quest for the best one is reading broker review, which is an excellent source of information. Different brokers apply variable platform fees, which may include platform usage fees or a commission per transaction.

Transaction costs are often built into the buy and sell “spread”, and are not considered charges.

Many platforms also provide regular buying advice and a useful knowledge base that can expand the education of individual traders.

FRA regulatory limits

European Supervisory Authorities such as FCA have imposed a series of limits on retail traders to cut losses. These include leverage limits as follows:

  • 30: 1 on all major currency pairs for Forex accounts
  • 20: 1 on major indices or gold
  • 10: 1 on all commodities except gold
  • 5: 1 on stocks
  • 2: 1 on cryptocurrencies

Bronze, Silver, and Gold trading accounts’ benefits

Individual traders will find that different brokers offer various incentives to frequent traders, which usually depend on the account level. For example, traders who achieve Bronze, Gold or VIP status from their broker will benefit from different terms than other traders.

These traders can benefit from reduced rates for transactions, access to a premium server with higher speeds, or perhaps a dedicated account manager. These benefits can be a great incentive for day traders, but they are not yet equivalent to offering a professional trading account.

Margin trading

If you open a margin trading account, the broker will grant you a line of credit (leverage). It can help increase potential gains. But it also means traders run the risk of incurring losses that could be unaffordable. These types of accounts are generally governed more strictly, with most brokers asking for a minimum investment before any margin trades. It is also possible that the broker will make a margin call and that a higher deposit will be requested to cover potential losses.

Accounts for professional traders

Professional trading accounts are only accessible to traders with proven levels of expertise and a certain amount of available investment capital. It’s generally a minimum of € 500,000. With these accounts, some restrictions don’t apply, and traders can use greater leverage for a variety of transactions. However, it is important to note that there is no form of regulatory protection for professional traders.

That these experienced investors can manage their own affairs and make choices within regulatory limits. It, therefore, includes the ability to trade higher-risk products.