One of the most useful features that a new trader can use is the demo account. Before the evolution of technology, traders didn’t have online accounts and they were writing their trades on paper rather than introducing them at the market. This is why the term paper trading is often associated with forex demo account trading. The demo or practice accounts allow new modern traders the opportunity to paper trade. It has the advantage of not requiring any deposit, since the trading is simulated and account balance is virtual.
Trades can be initiated and positions closed as usual, but no money is at risk. All losses are simulated, but all gains are also simulated. This has the advantage of allowing traders the opportunity to practice their strategies in a simulated environment without the fear of losing their initial investment. This is a very useful tool to learn, because traders will look at the indicators and try to determine when they should open a trade, how long they should keep it open and also when is the best time to close that position.
Learning the basics is more easily accomplished with the forex demo accounts.
Why is forex practice account offered?
These forex demo accounts are usually offered by Forex brokers in order to attract more customers. They reason that a large proportion of the users on the forex demo account will make the transition to the real account so that they will earn money from spread or commissions. The benefit to the traders is that they will grow accustomed to the trading platform and they will settle on a strategy that works best for them before depositing money to the broker and that is a good thing.
Trading errors can also be made and examined; it is best to do these errors on the demo account rather than on the real one. Also users may find out if they have what it takes to be a trader without making an investment first. Unfortunately, trading is not for everybody and the demo account can help make this selection.
Is there anything wrong on trading too much of paper money?
The demo account has the disadvantage that if the money is not real, traders may not be so attentive in their trades and not follow the market indicators so carefully, because they have nothing to lose. Demo trading however, needs to be taken seriously in order to provide a good estimation on how the trader will perform on a real account. Not taking enough time to think about the transactions means that the trader is more or less taking positions at random and whether he wins or loses will not be very indicative of his real performance.
Is it true that real trading will contribute the most to the development and growth of the trader, because when real money is at risk, the trader will take the necessary time to examine trends and consult market indicators until he is sure of the direction and parameters of the trade he wants to initiate. Registering losses will also motivate the trader to be more careful, while earning profits will make him more confident in his strategy.
Forex Demo Account vs Forex Live Account
It is true that demo trading does not necessarily determine live trading success. This can happen for a variety of reasons. First the real account can present slippage or requiting, facts that are sure to cause the traders great inconvenience. This can be resolved by selecting a respectable broker, as previously mentioned. Second, the trader makes the trades differently on the real account compared to the demo account. This means that the trader must have the same emotional response as on the demo account and to calmly judge every trade as impartially as he can without being too invested. This can be compared to the case of poker players that hide their emotions or don’t have them at all when bidding or raising large sums, because they know they will earn on average more than they lose by adhering to their strategy.
Traders may also make sure that the platform they use for demo trading is the same one that is available for real trading, because a switch may cause them to have larger losses until they adjust to working with the new platform.
What to do now?
As you understood the importance of demo trading, Forex Bonus Lab advise you to look up the best forex brokers and pick up the most suitable offer for a demo account free of charge.
Also you can participate in the forex demo contest instead of simply trading on a forex demo account.
Try combining forex demo account experience with live trading by getting 30 USD no deposit account with XM.