Most traders will not need to worry about this setting and should choose Trader.
However, selecting a different account type will restrict certain actions in your account. For a user that strictly wants to provide funding, the account type Funding might be desired.
Trader Account: Provides access to exchange trading, margin trading and margin funding.
Exchange Account: Provides access to exchange trading and margin funding.
Funding Account: Provides access to margin funding.
Your Bitfinex account type can be changed at any time on your Account page, under the Account Type dropdown.
For a visual representation, please see the image below.