How to Fund a Forex Account

Open a forex account today with eToro for easy funding options.

Foreign exchange or forex trading was once the exclusive domain of high-net-worth individuals, banks, hedge funds and large corporations. That has changed in recent years to include retail traders and beginner traders.

Opening a forex trading account has never been easier. Just about anyone with some risk capital, basic trading skills and a reasonably modern device connected to the internet can open a forex account to trade currencies online.

The minimum initial deposit required to open a foreign currency account to trade forex in has also declined, and some online brokers will let you open an account for just $1. In this article, Benzinga illustrates the best and easiest methods to fund a forex account.

What is a Forex Account?

A forex account is a trading account used to buy, sell and hold foreign currencies. In addition to funded forex accounts, many online retail forex brokers offer their clients a demo account.

A forex demo account lets you trade the forex market with virtual money and can be extremely useful to traders for testing strategies, indicators and market signals. Some demo accounts also allow you to backtest strategies over historical data. Trading in a demo account can prove beneficial to those new to forex trading since it lets you practice trading without risking capital.

Depending on the initial deposit amount you have available to you, you can open a full account, which lets you trade in full forex lots of 100,000 units of currency. If you need to deposit a smaller amount, you can probably open a mini account, which lets you trade mini lots of 10,000 currency units.

If you have extremely limited funds, you can open a micro account that lets you trade in micro lots of 1,000 units of currency or 0.01 of a standard lot. If your funding is even lower than that required for a micro account, some brokers allow you to open a nano account. A nano account lets you trade nano lots of 100 currency units or 0.001 of a standard lot.

How Does Forex Trading Work?

The forex market is the largest and most liquid financial market in the world. In contrast to stocks and commodities, forex trading has no central marketplace. A currency market instead trades directly between parties in a decentralized and largely unregulated over-the-counter market. The market’s main participants are large banks, corporations, hedge funds and high-net-worth individuals.

Exchange-traded markets generally have set open and close times, but the forex market trades 24 hours a day from 5 p.m. Sunday to 5 p.m. Friday New York City time. The majority of global forex trading takes place in the world’s four major money centers: New York, London, Tokyo and Sydney.

The forex market is divided into three different market types.

Spot Market

Trades made in the spot market are settled “on the spot,” which typically means in two business days. An exception to this general rule is the U.S. dollar quoted against the Canadian dollar that settles in just one business day.

Forex Forward Market

This over-the-counter market is for forex transactions, including forward outrights and FX swaps that settle on at least one future date other than the spot date. These contracts are often used by large corporations to hedge the currency risk arising from their foreign operations.

Currency Futures Market

The International Money Market (IMM) is the centralized and regulated part of the Chicago Mercantile Exchange (CME) that handles currency futures trading. These futures contracts are for a set amount of foreign currency to be exchanged at the transacted exchange rate for delivery on a specified and often-standard future date. Since the obligation for delivery falls on a futures contract’s seller, the majority of currency futures contracts are liquidated and settled in cash before their settlement date without the contracted currency deliveries actually taking place.

Most retail traders will not have access to the forex forward and currency futures markets in a basic online forex trading account.

Each currency pair is conventionally written as two three-letter International Organization for Standardization (ISO) acronyms that denote each currency separated by a slash (/). For example, the U.S. dollar’s ISO code is USD and the British pound sterling’s code is GBP, so the pound quoted in dollar terms would be written GBP/USD.

The first currency in the pair is the base currency, which would be GBP in the above example. The second currency in the pair is the quote or counter currency, which would be USD. A foreign exchange transaction in that pair would involve either buying GBP with USD or selling GBP to get USD. An example of a currency pair where the USD is the counter currency is the USD/JPY pair that represents the U.S. dollar quoted in terms of the Japanese yen.

One of the forex market’s best features is that you don’t need a special day trading account or a substantial minimum deposit for day trading currencies. This feature contrasts notably with the legal minimum capital requirement of $25,000 that U.S. stock day traders have to maintain. 

Another possible advantage of trading in the forex market versus stocks or commodities is the leverage available to retail forex traders. Leverage allows you to take additional risk by amplifying the size of the trading position you can control with a given amount of money placed on deposit as margin.

For example, if you were to trade a forex position with no leverage, you would have to put up the full amount of the funds to pay for the currency you want to buy in return for getting the full amount of the currency you want to sell. By using leverage, you only need to put up a fraction of the total amount of the position to control it, although when you control a larger trading position, you also have the potential for greater rewards or losses.

While U.S. traders can only leverage stocks by a ratio of 2:1 and commodities by up to 20:1, the leverage ratio some online forex brokers offer can be as high as 1,000:1. The maximum amount of leverage you can use as a forex trader often depends on your jurisdiction, however.

Top Ways to Fund a Forex Account

Depending on your circumstances and where you keep the funds you wish to use as trading capital, you can use several different ways to fund a forex account. The most popular methods are listed below.

Credit or Debit Card Deposit

Probably the most popular way to fund a forex account is with a bank debit or credit card. Most brokers will immediately open your forex account using this method, although some brokers may have a know-your-client (KYC) policy that can delay opening the account. Opening a forex trading account with a debit or credit card might be the best and easiest option for many people.

eWallet Account

Many online forex brokers will accept funds from an eWallet account, such as Skrill or PayPal, which can be a fast and convenient way to deposit funds in a trading account. If you wish to fund a forex trading account with cryptocurrency, however, you may need to look around for an accommodating broker that will let you do that, and it may end up costing you additional fees.

Wire Transfer

Most brokers will accept a wire transfer of funds from your bank to fund a forex trading account. This feature usually involves a fee.

Personal or Bank Check

If you want to fund your forex trading account with a personal check written on your bank account, then you can probably find a forex broker who will accept this funding method, although it will involve a processing delay because of the need to mail your check to the broker.

Market Understanding

Funding a forex account has become easier for retail traders with low minimum deposit requirements and demo accounts. Understanding markets and currency pairs is crucial for successful trading. The decentralized nature and 24-hour trading of the forex market provide flexibility. Traders can benefit from advantages like leverage but must manage risk wisely. Various funding methods such as credit or debit cards, eWallets, wire transfers and checks are available. Choosing the right funding option allows traders to start their forex journey and explore opportunities in the market.

Best Forex Trading Brokers

If you want to fund a forex trading account so you can start trading currencies, then you will first need to find a suitable forex broker to operate through. Benzinga has taken some of the guesswork out of that process by compiling a comparison table for you to review below showing some of the best forex trading brokers.

Frequently Asked Questions