How Does a Cent Account Work?

There was a time when it was impossible to trade with leverage higher than 1 to 100 or with fractional lots on forex or stock markets. It was impossible to open a position with a volume of less than one standard lot. It means that one could trade at the forex market only with a deposit of several thousand dollars and to comply with the risks in trading one needed a deposit of tens if not hundreds of thousands of dollars. It is clear that under such conditions forex market could not be as widespread as it is today.

What Is a Cent Account?

Many traders switch from demo to regular dollar accounts right away. But some brokers offer so-called cent accounts, or they can be called micro. What are their differences from the standard ones, and why traders, beginners, should begin with them?

In terms of conditions, the cent account does not differ from the real one. Specifically, you risk your real funds here, but in cents. Meanwhile, the minimum trade volume will also be lower than on a real account.

But it's important to pay attention to these points. When trading on the cent account, the broker adds zeros to your balance. That means that if you have one dollar, you will have 100 cents in your account, and if you have 10 dollars, then your balance will be 1000 cents, but it will be counted as dollars. This is a great advantage for various averaging trading systems where you need a large margin of safety.

It's worth keeping in mind that even if a broker takes its trades to liquidity providers, it's still not the same with cent accounts. Usually, transactions on such accounts are conducted internally by the broker. But the amount of transactions in cent accounts is very small, so the broker can cover the gain on them independently.

Why Do We Need Cent Accounts?

Cent accounts are best used for educational purposes: they do not have any difference from a regular account, and the amount is minimal.

After a beginner has completed the training course on a demo account, some recommend starting trading on the cent account before switching to the dollar account. If you get return from trading, you will be able to withdraw it, and if not - no big deal. For training on a cent account, $10 will be enough, the loss of which is not critical for most people.

Minimum Deposit on Cent Account

Usually, the smallest lot on cent accounts is 0.01, while on dollar accounts - 0.001. But this is quite enough, because on the cent account at the transaction volume of 0.1 lot 1 point of price movement costs only 1 cent at direct quote (when USD is in the second place in the currency pair).

Some brokers offer a 0.01 minimum volume on a cent account. Then the value of one pip on this volume is only 0.1 cent.

Such trading volume is hardly useful for practical application. But, it allows traders to trade at full capacity even with a $1 deposit.

Most brokers impose restrictions on the amounts that can be traded on cent accounts. However, some brokers allow trading with absolutely any amount of funds on cent accounts.

Pay attention that AdroFx offers two types of cent forex - Micro and Micro Pro. For a Micro account, the initial deposit is $25 while the minimum lot volume is 0.0001, and the spread is 2.0 pips. As for the latter, the spread starts from 0.4 and the minimum deposit is $100.

To learn more about AdroFx trading accounts, follow this link.

Testing Expert Advisors on Cent Accounts

As we wrote above, on cent accounts at some brokers you can trade with a deposit of $1 or more. But how can such a small trading volume be useful apart from training? To test bots!

The trader creates (or finds on the net) a trading robot. The first thing they do is to run it in a strategy tester for testing. After that, we recommend trading on a demo account and then on a real account with a minimum amount. The deposit of $1 ideally suits to risk for the sake of such trials.

The thing is that trading on a cent account is completely identical to a regular dollar account, while the spread, slippage, and order execution speed may vary on a demo account. All these conditions can distort the robot's statistics, and as a result, real trading may not show the same results as on a demo account.

A cent account does not have these disadvantages. Basically, if you do not have a lot of funds for a dollar or two, you can skip the testing on the demo account and switch to the cent account right after the strategy tester.

Advantages of Cent Accounts

Absolutely all the advantages of working on cent accounts should be considered from the side of differences between the standard account and the demo one.

It's much better to get a feel for the market if you place orders using real currency. Then if you do the same with virtual currency demo accounts. Quoting can be more accurate. Where a demo deposit doesn't show a tick, it can be on a live cent or standard account.

Every trader at the beginning of their career faces losses, so a minuscule amount of such a deposit gives an opportunity to decrease all the risks of losing capital due to a wrongly applied strategy as much as possible.

Using a small deposit one can really estimate the possibilities, which brokers provide. Familiarize yourself with the list of their services. Try out the speed of order execution, the peculiarities of trading platforms, the lack of slippage, the functions of personal accounts, and so on. And you will not risk a lot of funds.

For professional traders, such deposits allow trying out unusual trading methods and their own created trading robots, created by someone else in the real market, without fear of losing their savings.

Disadvantages of Cent Accounts

The main, and probably the only, disadvantage of the cent account is the dulling of the fear of losing deposit. There appears a certain negligence and overconfidence that can lead to unjustified risk and to the loss of dozens of deposits.

In forex trading, the psychology of trading is very important.

It turns out that a lack of restraint and fearlessness can lead a trader to fairly tangible financial losses, the recovery of which will be difficult and take much effort and time. But even such losses cannot be compared to such a loss that would occur if the trader works in a regular account.

Radically reconsidering one's strategy requires an approach that can be called unsuccessful . To find the error, it is recommended to go back a few steps and practice again in the framework of demo accounts. After all, the main rule of forex trading is the need to learn to take away, not to give. That's why first of all one has to practice well and learn to work "in the black", using a virtual demo account. And only when this skill is well established should one start trading on a cent account. And when trading on the cent account becomes successful, only then you can proceed to work with the deposit in dollars or euros.

How Are Cent Accounts Different from Real Accounts?

Many traders believe that cent accounts differ from classic accounts by nothing except the minimum deposit. But in fact, this is not entirely true. The fact is that in cent accounts the conditions of most brokers are somewhat worse than in standard ones.

For example, it may concern the spread. It is higher for cent accounts in some companies. It is the broker's fee for providing the opportunity to trade with a lesser amount of funds by converting the balance into cents. But it is important to make one caveat here. If a broker offers several types of classic accounts, the spread can differ considerably for them as well.

An important difference might be the speed of order execution, even on the same types of accounts.

In some brokers the cent accounts may have restrictions on the maximum position size or the maximum number of orders, which is also an important condition, especially for systems with averaging, or if your system trades a large number of trades at once.

Conclusion

A cent forex account is an excellent solution for professionals testing new strategies and beginners learning to open trades and get acquainted with the terminal.

After all, a small investment of real capital will allow you to test the reliability of a broker, trading conditions, and trading style.

About AdroFx

Established in 2018, AdroFx is known for its high technology and its ability to deliver high-quality brokerage services in more than 200 countries around the world.  AdroFx makes every effort to keep its customers satisfied and to meet all the trading needs of any trader. With the five types of trading accounts, we have all it takes to fit any traders` needs and styles. The company provides access to 115+ trading instruments, including currencies, metals, stocks, and cryptocurrencies, which make it possible to make the most out of trading on the financial markets. Considering all the above, AdroFx is the perfect variant for anyone who doesn't settle for less than the best.