Which Type of Trading Account Should I Choose?

There are approximately 9.6 million traders across the globe who trade actively online. The forex market alone has an average trading volume of more than $6.6 trillion per day.  But forex isn’t the only asset you can trade. There are stocks, indices and commodities to choose from too. But if you’re just starting out on your trading journey, the first step is to open a trading account that allows you access to your chosen asset classes. Different brokers offer different account types, so knowing the type of account that suits your requirements can also help you choose the right broker for your needs.

Here’s what you need to know about the various types of accounts you can choose from.

RAW ECN Trading Account

A Raw ECN account, also known as a raw spread trading account, offers real-time market prices across all instruments. It is mostly used for trading forex and equities. ECN or Electronic Communication Network brokers directly provide institutional grade liquidity, sourced from the world’s largest financial institutions, including large banks, hedge funds and other liquidity sources. This type of account is mostly used by professional traders who aim for the best possible trading conditions.

The advantage of this account type is that there is no middleman, so buyers and sellers trade directly with each other. The ECN broker does not add any charge to the asset price, so the spread tends to be extremely low. Some brokers even offer spreads starting from 0.0, with only a nominal commission as low as $1 per side.

Due to the large number of liquidity providers these brokers have access to, there is no delay in order execution, which prevents slippage. A trader can also have unlimited open positions and pending orders with an ECN account. For trading forex on an ECN account, you can also access leverage of up to  30:1 with a regulated broker.

The price feed is completely transparent in ECN accounts, with all ECN brokers providing access to the exact same price feeds. So, there is no additional advantage to any trader since every trader has equal information. Users can analyse market trends with the help of price history, which is also readily available.

For traders who regularly make large transactions, an ECN account provides a level of anonymity, should they desire that.

Benefits of a Raw ECN Trading Account

Some of the major benefits of having an ECN trading account include:

• The trades are executed almost instantaneously, preventing slippage.
• Trader can access the tightest spreads because the trades are direct. This helps minimise the cost of trading.
• The trade executed is directly between the buyer and seller, with no mediation by the broker or any other third party.
• An ECN broker will never trade against their traders. This is because they are not market makers, who earn by taking a counter position to that of their clients.
• Since ECN brokers do not place trades against you, it is difficult for them to manipulate the market and shift prices. They use the prices offered by the liquidity providers. This leads to transparency and makes it easier for traders to trade instantly.
• Traders have access to real-time, live and current market information, along with the accurate past history of the assets.
• An ECN broker charges a small commission on the trader’s trading volumes, which means that the broker will want the trader to earn a profit.

Standard STP Trading Account

Standard STP or Straight Through Processing is an automated process that does not require any manual intervention for order placement, which is completely done through electronic transfers. It is used by financial institutions to speed up payment processing without compromising on security. Any company involved in STP needs to have certain major systems and technical networking to facilitate efficient STP.

All trading orders on an STP trading account are routed directly to liquidity providers with the help of Direct Market Access (DMA). All trades first go into the liquidity pool and then the orders are filled at the best available price. STP brokers promise traders a highly transparent trading environment. In this way, an STP account is similar to an ECN account. However, ECN accounts allow traders access to real-time markets since orders are sent directly to the market. The brokers only play the role of providing this connection between the trader and the market.

An STP account is considered ideal for traders who are ready to enter live trading. It provides traders certain benefits, such as greater market depth, faster trade execution, pricing transparency, and low spreads with no commission. The trade execution speed is well suited for swing traders, scalpers, and the use of expert advisors (EAs). Regulated brokers also offer leverage up to  30:1 on STP accounts.

Benefits of STP Trading Account

Here are the main benefits offered by STP accounts:

• An STP account offers faster transaction processing time. It reduces the number of steps required in a transaction and the people involved in processing.
• The payments in STP are completely automated and are conducted through electronic methods that reduce manual intervention while also reducing the risk of errors.
• Best price is offered due to the orders being routed directly from liquidity providers.
• The STP broker offers both variable and fixed spreads, which gives traders greater convenience to choose the type of spread they prefer.
• Along with access to live market trends, traders can also search for brokers that offer the best quotes for the assets they wish to trade.

Swap-Free Trading Account

Since the forex market functions 24/5, traders have the option to keep their positions open overnight. However, such positions entail swap fee, which is the interest charged for keeping the position open overnight. However, under the Islamic Shariah Law, interest payments, such as swap fees, are prohibited.

According to Islamic law, while doing business or participating in a contract, charging or receiving interest, known as Riba, is forbidden. However, the law does not restrict the exchange of currencies. For traders who follow Islamic law, choosing a broker that offers swap-free accounts is important. Swap-free accounts are, therefore, also known as Islamic Trading Accounts.

A swap-free account does not charge swap fees, which lowers the trading cost for those who wish to leave their positions open overnight. Although swap-free accounts were introduced with Islamic traders in mind, traders of other religions can also benefit from swap-free accounts.

Swap-free Accoun Benefits

Some of the key benefits of swap-free accounts are:

• Hold positions open for unlimited time without needing to pay interest (swap).
• Swap-free accounts offer real-time market access and fast trade execution.
• Traders can choose from raw ECN and STP account types while opening a swap-free account.
• All asset classes can be traded with a swap-free trading account, including gold and silver CFDs, oil and other commodities, global indices,  share CFDs, and major, minor and exotic forex pairs.
• Regulated brokers offer up to  30:1 leverage on the swap-free accounts, based on the asset being traded.
• When swap-free accounts are offered on the best performing trading platforms, such as MT4 and MT5, they can be accessed on any device, from anywhere and at any time.

Demo Accounts

Demo accounts are a replica of live brokerage accounts that are used by beginners to learn trading and familiarise themselves with the financial markets and trading platform. Experienced traders also use a demo account to try out new strategies before applying them on the live markets.

With a demo account, traders can access real market conditions and practice trading without needing to invest any real money. This helps gain experience and confidence before using one’s hard-earned money in the financial markets. Traders can also gain insight into the types of risks they are likely to face with their chosen assets and fine-tune their risk management strategies.

Demo accounts came into existence with the accessibility of high-speed internet. Online brokers started offering these trading accounts in the 2000s. Today, they have become a necessity, rather than a perk offered by a broker.

A demo account is beneficial in learning how to use all the trading and charting tools offered by platforms, such as MT4 and MT5. Traders can also use these accounts to learn more about EAs, set up EA parametres and backtest their strategies. Here, it is important to choose a broker that gives access to hundreds of different instruments to practice on before you start trading with a live account.

Once you gain confidence, you can open a live account, deposit the minimum funds required and start trading the live markets.

Benefits of Demo Account

Here’s why demo accounts are a useful part of the trading journey for traders of all experience and skill levels:

• A demo account does not expose you to real risks, so traders don’t actually lose any money when trades go wrong. However, they do give exposure to the types of risks traders are likely to face under all market conditions.
• This type of trading account helps you with self-analysis. You can keep a trading journal while practising on a demo account and they gain insight into what went into each trading decision and its outcome. This can be very useful in learning how to control emotions and not let them impact trading decisions.
• It helps traders understand how market trends, news, economic releases and market sentiments impact asset prices, trading decisions, trading strategies, and other functions of the account
• It offers a stress-free way of learning all the different aspects of trading.
• Traders can practice for an unlimited period before they switch to a live account.

Spread Betting Account

This type of account is meant for traders in the UK and Ireland. Along with CFDs, they can also benefit from spread betting since it is tax free in these countries. With this type of trading account, you can speculate on price movements in forex, indices, stocks and commodities, without the need to own the underlying asset. The best regulated brokers offer this account with zero commissions. So, traders only need to pay the spread, which is the difference between the bid and ask price of an asset.

Benefits of a Spread Betting Account

The major benefits for traders with this account type include:

• Lower trading cost due to no stamp duty or capital gains tax involved.
• Both rising and falling prices offer trading opportunities, where traders can go long if they expect the price of their chosen asset to rise, while going short if they predict that the price will fall.
• You can trade using leverage to increase exposure to the market.
• Spread betting is open 24-hours a day, which gives the convenience of trading at any time.

Final Take

Remember that the account type you choose will determine the trading conditions you receive. It will also determine the minimum deposit amount required. If you intend to trade with leverage, you should also check the minimum margin that needs to be maintained to keep your positions open. While a Standard STP account is well-suited for beginners, since it offers simple and direct market access, a Raw ECN account may be a better choice for experienced traders looking for ultra-fast trade execution and deep liquidity. The account types will also differ in terms of commissions charged. So, make sure you do your research before making a final choice. Most importantly, choose your broker wisely. Although many brokers offer a variety of account types, check whether you can access responsive customer support, a wide range of markets and account funding methods that are suitable for you.

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