It is impossible to start trading without first opening a trading account. A forex trading account is an account opened with a forex broker for the sole purpose of depositing money in your home country currency and using that money to trade in other currencies.
There are some things anyone intending to open an account should consider.
1. Research Reputable Forex Brokers
There are millions of forex brokers constantly advertising themselves and offering to give the best return on investments. Unfortunately, most of these are fraudulent.
When determining if a forex broker is reputable in the United States, you must first check if the brokerage company is registered with the National Futures Association (NFA). Just checking is not enough, NFA provides a background information platform. Go a step further and verify the brokerage is registered and that their record is clean.
The NFA imposes heavy fines on brokerage companies caught in malpractice. As a result, a registered brokerage with a clean record is a safe bet.
2. Aim For A Well-Known Forex Broker
Research alone is not enough. Sometimes despite deep research, some things fall through the cracks, and you might end up picking a fraudulent forex broker.
To protect yourself from such a situation, it is always a safe bet to pick a well-known forex broker as opposed to an obscure one. It follows that if a brokerage firm is well-known, many people have already vetted it.
Note that aiming for a well-known forex broker especially applies if you decide to pick an international or foreign broker. Forex brokers in Australia, for instance, are not as monitored as those in the United States.
3. Always Start With A Demo Account
For someone who is new to trading, it is advisable to start with a demo account.
A demo account is one that allows an investor to trade with fictitious money as a means of learning about a certain trading platform. The brokers offer the trading platform.
As part of your research into trading and account opening, open some demo accounts with different brokers. Test each of them out, learn its tools, unique features and strategies.
When you have enough information, you can then open an account with the platform you felt most comfortable with.
4. Open The Actual Account
Opening a trading account is similar to opening an online bank account.
You have to provide personal information, proof of identity, and the minimum amount the broker you have chosen requires. Also, in most cases, your forex broker will ask you to fill out a questionnaire that will tell them of the level of your financial knowledge.
Sometimes, a forex broker will accept a debit or credit card instead of cash. It is not advisable to use a credit card because in case of loss you will sink into even greater debt. And most credit cards in the United States are known to have very high-interest rates.
5. Understand The Different Types Of Accounts Available
Most brokers offer three main types of accounts.
i) A Cash Account
As the name suggests, a cash account is the type of account where an investor deposits cash into the account upfront. The money is kept in an interest-bearing account until the investor is ready to trade. The money is then transferred and used to cover the trade.
ii) A Margin Account
A margin account permits an investor to borrow money to cover the trade, then pay it back at a certain interest rate after the trade.
iii) Managed Account
A managed account allows your brokerage firm to make trades on an investor’s behalf with no prior notification. It is important to research the above three types of accounts in depth before opening one. Use the information gathered to choose what works best for you.
Forex Account – Final Word
Choosing a broker and opening an account is the most sensitive aspect of forex trading. It will determine whether your foray into trading will even take off. Take your time and open the right account.
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