Guest Post by Alex Eliades of www.xglobalmarkets.com
Most traders have a tough time selecting a good broker and with good reason too. Not only do they have to watch out for the good, the bad and the unregulated brokers but they also need to understand the terms and conditions of the different account types on offer and also understand why some accounts with the same broker have huge minimum deposit restrictions, charge commissions and have sub-pip spreads while others don’t.
At first visitors might get the impression that they have to deposit many thousands of dollars to get a professional trading account that has the tools and conditions that they need to profit from trading. In most cases (not all) that would be a misconception and it is more likely a marketing ploy that is associated with offering different accounts. The goal would be for brokers to acquire clients with certain deposit thresholds. The reality is that some brokers offer trading accounts with barely any deposit requirements that have similar conditions to those with brokers that have huge deposit requirements.
In order to understand the different types of account offerings we must first focus in on the variables that trading accounts typically feature.
One variable is the spreads and commission charges; it is common for brokers to make money from a mark-up in the spread or from commission fees per traded lot and sometimes a combination of the two. Generally the typical retail account has wider spreads but the trader is not charged commission fees. These accounts usually have very low deposit requirements and are accessible to most traders. Accounts that are targeted at high depositing traders are usually offered with tight spreads and commission fees per traded lot, which may better suit larger trades.
Another variable would be the type of trade execution featured in an account. The typical retail trading account is often connected to a dealing room and the broker practices market making. In this scenario trades over a certain threshold are executed manually and require dealer approval. If the dealer can make the trade profitable either by covering it at a better rate with a liquidity provider or by taking the other side of the trade the client will have their order approved, otherwise the dealer will issue a re-quote or process the trade with negative slippage. This can take several seconds although in the cases of smaller trades a virtual dealer is often used, which speeds up the execution. A more professional type of execution model is known as STP or straight through processing, which is also inherent in an ECN account. Instead of a dealing room being involved, orders are executed directly with a liquidity provider without any intervention. This provides the trader with direct market access, orders will be placed within milliseconds and re-quotes will never be issued. The only drawback is that the spreads will always be variable and orders can receive pricing slippage, both of which are traits of trading directly on the market.
Another variable that we will cover here is whether or not the spreads are fixed or variable. Quite often traders prefer fixed spreads if they are using expert advisors or some form of automated trading. The thing is fixed spreads can never be offered when a trader has direct market access as the spread is made up from the lowest bid/ask prices from multiple liquidity providers. Therefore, fixed spreads will only usually be available when a dealing room is involved. In all other cases such as ECN/STP accounts the prices should always be variable.
The final thing worth mentioning is that sometimes accounts can be classified by the type of trading platform on offer. For example Sirix or MetaTrader 4 is a common platform that is offered by the majority of retail Forex brokers. Currenex or SaxoTrader on the other hand is a more professional trading platform that is used more for institutional clients or for brokerages to trade themselves. Therefore, some brokers offer a Currenex account which they demand a high deposit to access.
We have covered some of the more important features that different account types might feature but note that there are other important things to consider such as leverage offered, liquidation level, lowest required margin trading instruments, whether hedging or scalping is allowed, the use of EAs, swap-free/Islamic as well as additional services like Trading Central or Autochartist.
Now we have gone over some of the variables that are usually thrown in you need to understand that even though a broker requires a $10k deposit for an ECN account it doesn’t necessarily mean that you can’t find another broker that offers an ECN account with similar conditions but just requiring a minimum $200 deposit. However, some brokers might require high deposit requirements in order to provide institutional trading conditions that are not so profitable for the broker with smaller and less frequent trades. In this case the broker needs to ensure that they are able to cover their operating costs so they add a minimum deposit level. Be aware though that a true ECN broker will not benefit from large deposits, only a high volume of trades but there is some correlation with deposit level and trade volume. It’s also important to mention that clients with large deposits are likely to get VIP treatment by brokers vs regular clients.
Despite some brokers requiring relatively large deposits for very competitive conditions, we have seen brokers out there that offer the same type of institutional grade trading conditions with low minimum deposits so the bottom line is if you a looking for professional trading conditions you don’t always need a huge deposit but it might help you secure excellent customer service and a professional trading platform.
XGLOBAL Markets offers a single trading account with spreads starting at 0.8 pips with no commission in a swap free environment. All trades are executed on the companies ECN providing direct market access through an MT4 bridge. They do not have a minimum deposit requirement, so traders can get started with the minimum amount it would take to place the smallest trade.
About the Author
This article was a guest post by Alex Eliades of xglobalmarkets.com
