Why do brokers have different types of accounts?

Every trader is different in his or her trading style, strategy, trading goals, risk tolerance, budget, experience, and so many other aspects. Hence, they will have different needs and requirements that the brokerage companies have to satisfy. But how do you create a service that suits so many different trading profiles without colossal expenses? – the solution is to design several trading account types.

It is not a universal rule that all brokers have to offer numerous account types, but high-quality firms will often do so. You will frequently encounter brokers with Micro or Cents accounts, Standard accounts, and VIP or Premium account types. Obviously, there are many other variations like Raw Spread (Zero Spread) account types or Islamic account types, but they are very specific to certain regions and specific companies. Hence, we will be discussing the need and significance of different account types in the trading world. 

How account types differ from each other

Sometimes, trading account types depend on the financial instrument that a user wishes to trade. For instance, some brokers might have different types of Forex trading accounts and Shares trading accounts. In general, the brokers will offer at least two account types. One of them will be cheaper with average trading conditions and low starting capital requirement, while the other should be a bit more expensive and provide premium conditions with higher deposit requirements. In case brokers have two account types, Standard or Classic account type will be the cheapest option with standard spreads, less flexible leverage, potential limitations to maximum balance or maximum amount of simultaneous trades that a user can place, etc. 

The most diverse account type is Premium, VIP, or Pro. You will hardly find two brokers with exactly the same Premium account type conditions. The general rule is that these accounts should offer better conditions, with tighter spreads and more flexible margin requirements, fewer restrictions on simultaneously open trades, no limits to maximum balance or withdrawal amounts, etc. 

The Cents or Micro account types are the most popular options of beginner traders for several reasons. These accounts will often share numerous similarities across different brokerage platforms. For instance, while comparing XM trading account types and HotForex account types, you will notice that the Micro accounts are the most similar types among other options. Both XM Micro and HotForex Micro accounts allow clients to start trading with 5 US dollars, spreads start at 1 pip for each account, and both support Islamic account options. Similar Micro and Cent accounts can be found with FBS, Oanda, RoboForex, etc. 

Fee structures across account types

It is not news that the fee structures will vary from one broker to another. However, the same applies to trading account types, as well. You cannot expect a Premium account type with numerous benefits to cost the same as a low-budget Micro or Cents trading account. However, the best Forex brokers online will try to always offer commission-free trading no matter the account type at least on Forex currency pairs or some other financial instruments. 

Micro trading account types and Premium account types are two of the most commissionable account types as they offer either VIP services or ultra-low margin requirements, minimum tradable lots, etc. If there are no commissions applicable to these account types, then most likely the broker compensates it with additional administrative costs, or even hidden fees in some cases. Premium trading account types will often offer ultra-tight spreads sometimes even starting at 0 pips on currency pairs. These accounts will then charge commissions, either fixed rate per round turn or variable depending on the size of the trade. 

Commissioners accounts will often come with high spreads frequently exceeding 1 pip on Forex pairs. From time to time, high-quality brokerage companies might offer tight spreads with commissioners accounts, such as XM Ultra-low trading account type providing spreads on Forex assets starting from 0.7 pips. Some brokers might even offer Standard trading accounts without commission charges and with spreads as low as 0.6 pips, such as AvaTrade. However, these brokers will often require higher minimum deposit rules exceeding 250 US dollars to start a real trading account and will have additional limitations and/or restrictions, such as the absence of bonus programs and loyalty programs. 

Which trading account type is the best?

There is no universal trading account type that will suit each and every trader. For instance, day traders might not care about commissions as much as they care about spreads and leverages. Those who are into automated trading will be looking for accounts supporting EAs and various trading strategies. Other traders will choose according to the trading capital available, risk tolerance, and desired trading instrument, as some accounts might restrict access to trading assets. 

If you are a beginner, the low-on-budget trader then obviously Micro or Cents trading account types will work best for you. You may want to make sure that spreads are not much higher than the market average and that you are not charged with commissions, administrative costs, or hidden fees. If the account type only differs from the Standard type in terms of lot sizes, then it would not be a smart move to choose Micro/Cents if there are no more benefits applicable. 

Advanced and professional traders will often choose VIP, Premium, or Pro account types despite the fact the accounts often come with commission fees. These account types will allow more flexible leverage levels, fewer restrictions, much lower spreads (sometimes starting at 0 pips), and many more benefits. There will be no limitations to how many simultaneously open orders a trader with Pro/VIP/Premium account type can place. Furthermore, all strategies shall be allowed on professional account types. However, the minimum deposit requirement is usually highest on such accounts, often starting at 250 US dollars and exceeding 10,000 US dollars in some cases. 

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