Forex brokers nowadays present prospective clients with a plethora of different trading accounts. Two of the popular options available are the cent and standard. For the most part, the trading conditions within the two are very similar; the only exception is the minimum lot size.
As the name suggests, the position sizes on a cent account are significantly smaller than with a standard (0.01 lots), where the lots begin from 0.001. Of course, it’s clear to see the size of orders are worlds apart, and this will have a bearing on a trader’s psychology and profit potential.
Although new traders could use any of these options and obtain the same results, not enough traders are even aware of a cent account and typically opt for the standard since it’s far more popular.
Though is this a significant disadvantage; should they consider the former? This article will explore the differences between the two and end with a firm conclusion.
Differences between a cent and standard account
The terms ‘cent’ and ‘standard’ refer to the minimum position units available for that specific account. A cent or nano account has lot sizes beginning from 0.001 (known as nano lots), which is 100 units of the base currency in a pair where every pip is worth $0.01.
It’s important to note a standard account accommodates sizes from 0.01. Therefore, it’s not limited to ‘standard’ lots that are technically 100,000 units (1 lot) of the base currency in a pair where each pip is valued at $10 a pip.
With a standard account, depending on the account size, traders can open micro lots (0.01) and mini lots (0.1), in addition to standard lots. Generally, a vast majority of brokers offer standard accounts mostly because of the financial incentive, which is both an advantage and a disadvantage depending on a trader’s skill.
If we consider new traders who’ve probably never traded a live account beforehand, it is a drawback from a monetary perspective. At this point, they would not have gained the necessary experience to trade reasonable lots and are likely to risk a lot too soon.
Only a handful of brokers offer nano accounts, probably because of the lower monetary incentive. New traders should certainly consider this option, gradually and steadily building up their balance, skills, and experience before moving towards bigger lot sizes.
Pros and cons of a cent account
The main advantage of a cent account is it requires a drastically lower financial commitment, which is beneficial especially for cash-strapped individuals who cannot afford to fund much above their actual disposable income.
Although the figure isn’t necessarily important, it makes sense for a new trader to start small. Without a cent account, it isn’t easy to do this since a standard account may not allow them to open positions reasonable to their balance.
For instance, if they funded $20 on a standard account, depending on the leverage, there will likely be pairs where they cannot open a 0.01 lot size. Even if they were to, this would constitute a large percentage of their equity, and a slight move could easily wipe them out.
A cent account allows new traders to trade virtually all available forex markets with a relatively small balance. Another big motivation for a cent account is being a viable method to transition from demo to live without committing too much initially.
Some may use this opportunity to forward-test, in real time, a new trading strategy or expert advisor with little money they can willingly lose and quickly recover. Of course, the only negative aspect about a cent account is the gains are tremendously smaller.
Also, very few brokers currently offer this service. However, overall, it’s a sensible approach for new traders to get their feet wet.
Pros and cons of a standard account
Traders using this account should already be profitable and gained enough experience handling losses and profits with mini, micro, or standard lots. In case a trader considered trading a different financial instrument, a standard account can usually accommodate other securities in terms of sizing.
With a cent account, some markets like specific indices and commodities aren’t tradeable with nano lots as a minimum. Standard accounts are highly accessible with nearly every broker. The main evident advantage of them is the profits can be pretty sizable.
Unfortunately, there is a dark side to this potential, which can be overwhelming for the novice trader with little experience. With a standard account, they are likely to make some severe money management stakes where they could lose substantially.
We can best summarise the purpose of a cent account as a great segue in transitioning from demo to live with minimal financial risk. Conversely, a standard account is best for those with some skin in the game who’ve already traded small amounts prior.
There are countless reasons why traders either lose substantial amounts trading in the initial stages or cannot be consistently profitable. One of the pertinent causes is risking too much without enough confidence in their trading or proper risk management.
Needless to say, although the potential gains on a cent account are a lot smaller, traders should not focus on the numbers until they’ve gained sufficient experience. They should rather concern themselves with the process.
So, new traders can start small with a cent account and grow big with the standard.