Advantages and Disadvantages of Trading with Standard Account via a Broker

A trading account is an investment account which holds securities & funds. The investors can buy and sell assets from a trading account whenever they want. This can be an individual trading CFDs (Forex, Cryptocurrency, Indices, Stocks & Commodities). The assets which are held in a trading account are kept separated from other long term investments. 

There are multiple Forex trading brokers and they offer different types of trading accounts based on the investor’s choice and capacity of investing (this mean the actual amount of fund they are Investing). It can be complicated when finding the right type of forex trading account that coincides with your potential deposit size. Commonly, there are three types of Forex accounts; Standard Account, Mini Account and Micro Account. 
 

Please be assured that not all Forex brokers offer all three types accounts (see brokers). When trading currencies on standard account you can buy and sell 100,000 units of currency as a minimum (this equates to one standard Lot). There may be a limit on how many Lots can be traded on each individual trade. A broker may put a cap based on existing funding of trading account and set margin requirements. It’s important to understand the meaning of Forex Leverage and Trading Margin.

Leverage Trading: Leverage is the size of a trading position permitted based on how much you funds/equity you have in your trading account. Majority of brokers offer 20:1 to 400:1 leverage trading. Higher leverage means more chance for Increased profits as well potential for higher losses. For example, a leverage ratio of 100 times (100:1) means if you take margin on your deposit of say £1,000 you can take a trading position of up to a maximum £100,000. Due to recent ESMA regulation all brokers licensed in the EU can only permit a max leverage of 30:1 on certain trading assets (this is only applicable to beginner/retail clients. Professional client with solid trading track record can enjoy high leverage accounts with EU regulated brokers).

Trading margin: Margin is a ‘good faith’ deposit – the collateral that is held by the broker to hold open a position. This is not a transaction cost, nor is it charged to your account, but serves to ensure that you have sufficient balance in your account relative to the size of your position.

• Mini Account Definition: This account allows the investors to participate in trading with only 10,000 units                          Note: Leverage varies from one broker to another.
• Micro Account Definition: The lot size of a micro account is 1,000 units and this allows the investors to trade with an even smaller deposit. This gives new investors some basic experience of trading before they move to make bigger investments
• Standard Account Definition: With a standard account, an investor can trade with a unit size of 100,000 (this equates to one Standard Lot). This account provides more benefits than Forex Micro Accounts and Forex mini accounts. Majority of brokers like XTB and Pepperstone give Standard Account Users a dedicated manager to support you with navigating through the trading platform, deposit & withdrawal issue etc. 

What is a Standard Account?

The standard account is the most common and most popular of all the accounts and this is because of its high benefits. It is suited best for Institutions, experienced investors & individual who have available funding (suitable of $1,000 plus). This account offers a standard lot of currency i.e. 100,000 units.

This, however, is not to say that an investor must have $100,000 in order to start trading. Many brokers have different leverages and margins, and based on these factors, they can offer the investor to trade with a minimum of $500. To Open a Standard Account with Pepper Stone Broker the minimum deposit is only $200. (Open Account).

Investors who have a good knowledge of the Forex markets and are experienced in trading generally prefer to have standard accounts so as to enjoy the benefits which are not available with other accounts. The leverage of mini and standard accounts are the same, and in addition, a standard account also includes an array of account types, different account denominations, better client service and the facility of trading with mobile. 
 

Why Choose a Standard Account?

Without a Forex trading platforms, traders who want to invest in foreign currency need a large amount of money and also a good relationship with the foreign banks. Brokers make this task easy for the traders.

Forex brokers generally offer a list of the prices from the banks in which they have some Forex liquidities. They compare the prices of multiple banks and choose the best price available for their clients. 

They also offer a demo account or practice account which a trader can open by giving minimal information. The purpose of a demo account is to provide traders with some practice on trading until they feel they can invest real money in Forex trading. 

Forex brokers charge a commission every time the trader makes or close a trade. Whether investors face loss or enjoy gains, the brokers keep making money by collecting the profits between the price traders pay and the market price. This is also called spreads, and one advantage of having standard accounts is that it is very low. The change in relations between the currencies in Forex trading is measured by a unit called Pip, and it starts with as low as only 0.5 pips on major currencies in a standard account. Brokers offer Fixed & Variable Spreads. Pips on Fixed Spreads never change which suits traders knowing what they going to pay the broker for each trade. Variable spread accounts vary minute by minute and coincides with market action and volatility. For example, XM Standard Account only offers Variable Spreads to its users whereas XTB broker has slightly more flexibility in offering both Fixed & Variable Spreads.

What Lot Size Can We Trade With?

A ‘Lot’ is the lowest trade size, which a trader can buy in order to trade in the Forex Market. Lots have a major impact on the risk the investors/trader are taking.It is essential to calculate the lot size because this helps the traders in anticipating how much money they are risking. 

• Micro Lots: These are smallest tradable lots. In dollars, it is $1000. The pip size for Micro Lot Forex is 10 cents.
• Mini Lots: Mini Lots are 10000 units, and if a trader is trading in dollars, then 1 pip is equal to $1.
• Standard Lots: 100,000 units are the base size of standard lots. In dollars, it is $100,000. The pip size for Standard Lots is $10. This means that if a trader is up 100 pips, then the profit incurred in $1000. 

Standard Trading Lots are best for experienced trades, and brokerage firms require traders to have a large minimum balance to start trading. Below is the standard calculation if a trader was to have two seperate $5,000 & $20,000 ‘Standard’ Forex trading accounts. In the below calculation we will look at the offering of an XTB Standard Account. We will calculate how much you can potentially earn and why you should be careful when calculation risk. See how risk differs when we are trading from both standard accounts and how it impacts how much you are really risking and willing to make. Imagine we are about to take a EUR/USD trade your risk to reward ratio if 3:1 i.e. for every $1 you risk you are looking to profit $3. You are only looking to risk only 1% and stop loss is at 40 pips with profit target at 120 pips. We need to calculate the exact Lot amount we need to trade with?

Pros of Standard Account:

• Service: Since brokers can expect to make large commissions because of large investments, they prove the trader with as many services as possible. They also share their experience with the traders in order to help him choose the right trades because they are hopeful that if the trader gets a profit, he may make more investments.
• High Rewards: Each pip equals $10 in a standard account. This means that if a position moves up by 100 pips, the profit is $1000. This level of reward is not available with mini and micro accounts.
• Low Spreads: Standard accounts have lower spreads as compared to micro and mini accounts, and this saves money for the trader.

Cons 

• High Budget: This account is not suitable for beginners traders who want to trade with a small amount of money.
• Higher Balance: The standard account needs to have a higher minimum balance as compared to mini and micro accounts. For new investors, this minimum amount may vary from as little as $200 to $10000 as depending on the broker’s demand.
• High Loss Potential: It is said that high rewards come with high risks. This is true for standard accounts. Just as the position can move up and provide the trader with high profits, the position can also go down and cause great loss. Such a massive loss can de-motivate the investor and he may never want to trade again.