In this article, we will explore the difference between cent account and standard account, along with their advantages and disadvantages so that you can find the one that suits you the most.
Apart from deciding which trading strategy to use, every trader should also carefully consider which broker to choose along with the trading account that they offer because it can directly affect the way they manage their balance. As the forex market is packed with various types of traders, brokers usually offer many account types. Therefore, you have to make sure that you pick the right choice.
Typically, a forex broker offers several trading account options; each comes with different requirements and types of services. As a trader, it is vital to learn the specification for each type so you can decide which one matches your needs. Among the many types offered, there are two interesting types that many traders use, namely cent and standard accounts. So what are the differences between those two and which one is more worth your money? We will discuss everything you need to know about it in this article.
Many brokers offer a cent account by claiming that it is very beginner-friendly with minimum requirements. This account type was first introduced in 2006 to help traders who just started their trading journey with small capital.
As the name suggests, the main characteristic of a cent account is that it measures the balance with cents instead of the usual US dollars. For the record, 1 US dollar = 100 cents. As a result, if the minimum lot required is 0.01 lot, then it is equal to 1.000 cents (10 US dollars) only.
So by depositing only a small amount of money, you can enter the market and start trading. Some brokers don't even specify the limit on how low the deposit can be.
By using cents instead of dollars, traders will get accustomed to seeing big numbers on their accounts. Also, the risk is considered low compared to other accounts because even if it feels like trading with huge capital, you actually don' put that much money in the open.
That is why many traders would use the cent account as the transitional stage from a forex demo account to the real one. Trading with demo accounts can affect the trader's psychological reaction. They're aware that there's no real money at risk, so they tend to think that the trade is only for practice and might end up making clumsy decisions. But with cent accounts, traders do trade with real money from the very beginning, so they will get used to live trading and build up their plan. Thus, it could produce a better result with a more precise calculation.
For the same reason, a cent account is also excellent for testing and developing your trading strategy. By making use of the low-risk advantage, you can try different trading strategies while simultaneously sharpen your trading abilities and gain new experiences.
See Also: Lowest Deposit Forex Brokers
However, keep in mind that with smaller capital, you will also get smaller gains. That is why a cent account is not exactly the best choice if your goal is to get huge profits. It is more suitable for traders who want to improve their skills and experience in a real account.
While it is actually possible to get leverage from the broker if you are really aiming for a big profit, the truth is, leverage can be even more damaging if you don't manage your trade well and end up getting losses. Even so, you need high leverage in a cent account if you want to get a big amount of profit, and typically, high leverage is only used by experts who already have some experience in their pockets. For this reason, using high leverage in cent account is not recommended for beginners.
Another crucial matter to note is that the numbers of forex brokers that offer cent account are still quite limited. The majority of these brokers would limit the maximum position size to keep the account's exposure low.
Standard account is the most common account in forex trading. In this account type, the minimum trading volume per transaction is 1 standard lot which equals 100,000 US dollars (10 US dollars per pip for EUR/USD trading). This means, you're only allowed to trade if you reach the minimum size per transaction, which in this case is 100,000 US dollars.
While that might sound really grand, the truth is that you don't have to risk 100,000 US dollars in every trade because you can use the leverage (typically 100:1 in standard account). This way, you only have to put 1,000 US dollars as a margin for 1 standard lot to be traded.
As the name suggests, standard account is mostly considered as the standard choice and the most widely used trading account for forex traders, so it doesn't limit its features for certain types of traders only. The main advantage of using a standard account is that most brokers provide better services and more perks for standard account holders.
You can trade with a wide range of trading instruments (currency pairs, commodities, etc.) and are allowed to open more trading volumes at once. Another advantage is that you can get higher potential gains if you manage your trade well. With each pip worth around 10 US dollars, you can easily add $1,000 profit in your balance if you get, let's say, 100 pips in a day. This amount is not possible with any other type of accounts unless you trade with more than 1 standard lot.
However, opening a standard account will require you to have a relatively high minimum deposit. If you want to have enough space left to accommodate further price fluctuations, it is recommended that you open a standard account with a minimum deposit of 10,000 US dollars. Also, remember that with the high potential gains come high potential losses. Just as you have the chance to earn 1,000 US dollars in a day if the trade moves in your favor, you can also lose 1,000 US dollars just as quickly if the 100 pips move against you.
While having losses is essentially inevitable in forex trading, that much loss in just a day would give a damaging impact on traders with small capital in their accounts. That being said, the standard account might be more profitable, but it is also riskier than the cent account. That is why, this account type is more suitable for experienced, well-funded traders. It is a great choice if you want to get high returns and like to use various trading instruments.
Which Type is Right for You?
Opening a trading account means you should reflect on yourself first and considers the essential factors that are influenced by your trading style, level of experience, and starting capital. While both cent and standard accounts have their own unique benefits, you should pick the one that suits you the most and serve the purpose of your trade.
If you are a beginner and still have limited forex trading experience, then a cent account is worth your money. With only a small amount of capital, you can open an account and start trading with real money. Although the profit won't be spectacular and probably insignificant to your overall balance, it is still better than getting nothing (like in the demo account). The low-risk environment is also really beneficial to try different strategies, check the quality of a broker's platform, and improve your trading skills along with it.
On the other hand, if you are a more experienced trader with a sufficient amount of capital and proper trading strategy, then you should choose the standard account. You can maximize the use of the many services that come with a standard account and gain high profits along the way.
With a good risk management system, you will be able to reduce the potential loss and reach your trading goal. Also, it is very easy to find a broker that offers standard accounts. Some brokers like XTB and Pepperstone even give standard account holders dedicated managers to help them navigate through the trading platform, deposit and withdrawal issues, etc.
The Bottom Line
Cent and Standard accounts are the two account types offered by forex brokers. By going through the features along with the advantages and disadvantages of each account type, you might end up with a choice that is best for you and can accommodate all of your trading needs. Whatever that choice is, the most important thing to remember is to trade wisely and effectively.
It is always better to begin with a small capital and then gradually increase the size of your trade once you feel comfortable with your trading circumstances rather than immediately invest a lot of money and end up losing. Don't use up all your money if you're not ready to accept the losses, and don't let greed take control of your emotion.