The Ultimate Guide to
Pros, Cons and Characteristics of a ‘Standard Account’ in Online Trading
The most fundamental condition to trading financial markets via CFDs or spread betting is having a trading account. A trading account can hold cash and/or securities, is held by a financial institution and administered by a broker. Trading positions are taken using the base currency cash held within a trading account and the results from a closed trading position are paid into or out of the account.
Funds held in a trading account are required to not only cover the stake put up for a trade but also potential losses if leverage or margin is utilised by the trader. Brokers tend to offer up to three kinds of trading account – standard accounts, mini accounts and micro accounts. There may be additional sub-variations on these three account models that offer features such as higher leverage, but all accounts will approximately fall under one of those categories. Not all brokers will offer mini and micro accounts, though most targeted at retail traders will.
What is the difference between a standard trading account and a mini or micro trading account?
The main difference between standard, mini and micro trading accounts is the size of lots of a financial instrument that the trader can take long or short positions on. Standard trading accounts give traders access to standard lots of currency, which are usually worth the equivalent of 100,000 currency units. This doesn’t necessarily mean that the trader has to put £100,000, USD or EUR down to take a 1 lot position, as leverage of up to 100:1 is standardly available. This would mean an initial cash commitment of as little as £1000 is required to take a one lot position on a GBP currency pair.
Mini accounts give traders access to mini lots of 10,000 currency units and micro accounts 1000 currency units. Many beginner traders will start out with a micro trading account and then progress up to a mini account and finally a standard account as their trading capital grows and they have the experience and capital to take larger positions.
Standard Trading Account Pros
The most obvious benefit to trading standard lots of forex or any other financial instrument is that the size of the position means that if the trader has correctly foreseen the direction of the market they stand to benefit significantly. Each pip of standard lot movement is worth £10 so a 100-pip daily movement in the right direction will lead to the trader being £1000 up.
Because standard trading accounts are used to make large sized trades, they must be capitalised with significant funds. This is therefore obviously the most attractive kind of trading account for brokers to offer and as a result, the level of service and value-added tools and resources provided to standard account holders is generally superior to that for mini and micro accounts.
Standard Trading Account Cons
The drawbacks to standard trading accounts are the flipside of the pros. The capital requirement needed to open a standard trading account is normally an absolute minimum of £2000, or equivalent in another base currency. It will often be as much as £10,000. However, if a trader takes the sensible risk management approach of never risking more than 2%-3% of total trading capital on any one position, it only makes sense to open a standard trading account if the capital available is at least £40,000-£50,000.
The other drawback is that while trading standard lots offers the opportunity for the trader to be significantly up when finishing on the right side of a trade, the potential for losses is equally as significant when finishing on the wrong side of a trade.
Regulated brokers that offer a Standard Account
Regulated brokers such as IG and ETX Capital provide clients with a standard account. IG clients can switch from a standard account to a limited-risk account upon request.
In conclusion, a standard trading account is an appropriate choice only for experienced traders with a relatively significant value of trading capital.
