We are back again with this set of articles dedicated to give you some tips when choosing a broker. As you know, these posts are related to the webinar The process of chosing a Broker made by Gonçalo Moreira, our Content Advisor, a few months ago. Check previous posts:
There are more functionalities of a broker you might want to consider when opening an account. Some are more specialized, like the swap free or PAMM accounts, while others, such as the minimum trade size, should be considered by everyone. Let’s have a look at them!
Swap Free
Swap Free, or Islamic accounts, are a special type of trading accounts in which investors can operate according to Islamic law or Sharia, thus holders don’t receive or pay any usurious interest.
In the Forex market when a position is open overnight a rate is generated and it is paid or received by the difference in the interest rate of the currency bought. Thus, the trader does not win or lose any money by keeping positions open at night which are moved to the next day. Islam religion also expressly prohibits the existence of interests in any financial transaction (Riba) and in this sense, Islamic accounts or swap-free accounts do not generate any interest. Many brokers nowadays respectfully provide Islamic accounts – without rollover interest – which strictly correspond to Islamic Sharia law.
PAMM
PAMM, percent allocation management module, also referred to as percent allocation money management, describes a software application used by brokers to allow their clients to attach money to a specific trader managing one or more accounts appointed on the basis of a limited power of attorney. This solution allows traders to manage simultaneously unlimited quantity of managed accounts on one trading platform. Depending on the size of the deposit each managed account has its own ratio in PAMM. The results (profits and losses) are allocated between managed accounts according to the ratio between trade size and account balance.
Mimimum trade size
At this point, however, which is the minium trade size requirement? The types most offered by brokers are the “standard account” and the “mini account.” The former means that the trader uses lots of 100,000 units, whilst the latter means that the trader uses lots of 10,000 units. The main difference between these two accounts is the “payout”. For a “standard” account, 1 pip is usually worth USD10, whilst in a “mini” account, 1 pip is worth USD1. A “mini” account is appropriate for a beginner because the amount of risk involved per trade is lower, though the profit potential is also lower. Therfore, if you are a newcomer in trading, check that your broker offers “mini” accounts.
More tips soon! Happy trading!