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Chapter 38, Part II. Things to Think About. Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Opening a trading account

    Commander in Pips: Ok, finally we’ve passed through labyrinth of traps and pitfalls on the way of choosing the broker. Let’s suppose that you’ve found some – they look really good and reliable. What’s next?

    Usually procedure of opening an account includes four steps:

    1. Choosing the type of account;

    2. Paper work – analyzing of all documents and contracts;

    3. Money transfer;

    4. Activation of account and start trading.

    Choosing the type of account and corresponding paper work

    Today it will be hard to a find retail broker who provides only a standard account value, or only a mini account. The competition amongst brokers is so tough now that they fight for every client. And of course most of them have several types of accounts that could be popular. Depending on your assets size you can open standard account, mini account (allows trading with 0.1 standard lots) or even a micro account (allows trading with 0.01 standard lots or smaller). You may choose a different account currency or even gold and silver as account asset.

    Currently many brokers give clients possibility to trade not only spot forex but also on the CFD market, futures market and/or stocks. CFD means “Contract For Difference” – you may learn more about it, just Google “CFD”. In fact, this is some kind of derivative asset that has almost the same quotes as underlying asset but in different contract sizes. Applying CFD is how non-exchange brokers can provide clients with possibilities to trade futures and stocks with small start-up capital. For instance, a standard Gold contract is 100 Oz and initial margin at 1 contract will be around 9-10K USD. This is just the initial margin to open 1 contract. Trading a CFD on Gold let you to trade, say 0.1 standard lot (or even 0.01). The major difference here is that real futures on Gold are traded on an exchange market, while CFD’s are also the product of over-the-counter Forex brokers. That’s why CFDs could have different carry, slightly different quotes and so on. In fact the same differences exist between currency futures and spot forex. Still CFDs could significantly widen your choice of assets to trade.

    Another type of account that could be offered to you is managed accounts. Brokers can offer you to trade on your account – some kind of trust trading. If the broker will make some profit – it will get a solid percentage of it. But here are some problems. First, this account will usually require larger initial assets – 20K+ USD. Second, why have you studied so much just to trust trading to other person?

    Some brokers could also let you to choose – Dealing Desk or Non Dealing Desk execution – that is what you really want. But usually, NDD execution demands a so-called “Professional Account” with a much larger start-up sum – it could be 20K USD at minimum.

    And the last but not least – pay extraordinary attention to Agreements, Terms and Conditions, Rollover and Interest Policy. In other words - to all the papers that you will have to sign to open an account, and especially to text that will be written with small print.
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