Cent Accounts

Cent Accounts

Cent accounts are a great way to introduce new Forex and CFD traders to live trading with very little risk. Beginner Forex traders often start with the Demo accounts which simulate the trading environment at no risks to the trader. But, prolonged Demo trading creates some problems for the trader. First, it comes preloaded with virtual money ranging from $10,000 to unlimited amounts.

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Newbies often get used to trading with big money and make profits using wide ‘stop losses’ and ‘take profits’. But in reality, most newbies cannot have such a big amount of money in their account because they cannot risk such huge capital. Also, the emotions that characterize live trading are completely absent in Demo trading because the trader’s money is not at stake. When a newbie is finally ready for Live trading, opening a standard account is mostly disastrous as the majority of new trading accounts are easily blown when the harsh reality of Live trading dawns on the trader.

Cent accounts came to the rescue in 2006 when it was introduced by LiteForex; a renowned Forex broker. Other brokers followed and today, there are numerous brokers that offer the account. Cent accounts are live trading accounts that are denominated in cents instead of USD or EUR. So, if you deposit $5 into a cent account, it will reflect as 500 units of currency since 100 cents = 1 USD/EUR. Though EUR cent accounts are provided by some brokers, Dollar cents accounts are more popular. One cent lot is 1,000 units while a standard lot is 100,000 units of currency.

Benefits of a Cent Account

There are important reasons why traders open a cent account and they typically revolve around learning to become better in preparation for a Standard Account or higher.

Transition from Demo to Live Trading

Virtually every Forex broker asserts that its cent accounts are specifically designed for newbies. This is to introduce them to the world of live trading which is different from what is obtainable in Demo accounts. Most ECN and STP brokers do not route the Demo trading orders to their liquidity providers for execution. This is why there is always a separate Demo server where the Demo accounts reside. Client orders from the Demo accounts are not exposed to real market conditions because they are instantly executed on the Demo server. But, cent accounts give newbies the much needed live market exposure a perfect transition from Demo to Live trading with negligible risks.

Affordable Risk

Perhaps, the greatest advantage of cent accounts is that it has very low risk. Most brokers require a minimum deposit of $1-$10 to open a Cent account. This is a paltry sum which is easily affordable by most Forex traders.

Strategy Testing

Because of the reduced risk feature in Cent accounts, it has become a perfect account for strategy testing and perfection. Traders who deploy Forex trading robots and other complex trading systems have found Cent accounts very useful for customizations and back testing.

It’s also useful to test your EA on Cent Accounts as it’s easier to manage your risk, as losses are less if you trade with a minimum lot size.

Disadvantages

High Spreads and Leverages

Most Forex brokers always mark up the spread on Cent accounts and charge more trading fees when compared to other account types offered. They also offer the highest leverages on Cent accounts. It should be noted that leverage is notoriously referred to as “a double edged sword” which magnifies both profits and losses and therefore high leverages are not ideal for beginner Forex traders.   

Account Limitations

Most Cent accounts are limited by either or some of the following: position size, tradable assets, trading platforms, research tools, etc. Several brokers charge higher withdrawal fees from Cent accounts, others limit the services available to account holders.

Low Profit Potentials

Trading on Cent accounts while attractive, can take a long time to gain capital on, especially when the invested capital is small, and the spreads and swap fees are high.

Summary

Cent accounts are designed by Forex brokers to assist newbies to experience Live Forex trading with limited risks. The account currency is usually a hundredth of a Dollar or Euro. It is an excellent option for traders who wish to test or hone their strategies, trading systems or robots. It is also apt for newbies who wish to commence Live trading in a low risk environment. However, most Cent accounts have limited features and often come with high trading fees.

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