The best way to learn something new is in a safe environment. Learning to trade is no exception. Most brokers offer forex demo accounts, letting you try out the forex market without money. Let’s discuss all the opportunities that you can get using demo accounts.
What is a forex demo account?
A forex demo account is a virtual trading account where you can trade with virtual funds. It’s connected to a live trading platform to receive real-time market data. Most forex brokers offer a demo account upon registration.
Using a demo account means you can test the features without risking real money. Once you are familiar with the basic operations and can confidently use a forex demo account on MT4 or MT5, you will be ready to move on to trading with real money.
Why should new traders try a forex demo account?
Beginner traders can use a demo account to experiment with trading various markets, trading at different times of the day, and finding an effective trading strategy.
In a forex demo account, you don’t trade with real money. Instead, the account imitates a real Forex trading experience, allowing you to learn how to use the features and functions of the platform.
The demo account allows you to learn about the mechanics of forex trading and test your trading skills and processes with zero risk. If you are new to trading or currency trading, it is a good idea to find out if you enjoy forex trading before making any financial commitment.
You will be allocated a generous amount of virtual money to trade with. As a beginner trader, you should place at least 50 demo trades before trading with real money.
Repeating the process multiple times ensures that you know how to quickly open and close trades, which makes you proficient in placing orders.
Forex trading is intense and requires commitment and time. After learning more about forex trading and practicing on a forex demo account, you can decide whether it suits your personality and lifestyle.
Demo trading pros and cons
A demo account is a perfect way to practice your skills on the trading platforms MT4 and MT5. It also enables you to practice your trading skills without wasting real money. Sounds tempting, but there are some pitfalls to consider.
First, the forex demo accounts offer more money than a trader will use during a real trade because a trader can choose any amount for practice. However, people often choose more than they will trade with in real life. They take extra money for mistakes, but on real (live) accounts, traders won’t have such a big safety cushion.
Second, demo account trading lacks real emotions. There’s no fear when you have nothing to lose. Fear influences traders’ behavior, and few can control their emotions. As a result, practicing your skills when you do not know how you will behave under intense pressure does not provide a full picture of the experience.
So, what can you do about these setbacks? We will tell you in the next part of this article.
From a demo to a real account: the action plan.
If you follow a handful of rules, the forex demo account can be a helpful practice tool.
Choose the same amount you will have when trading on the real account. Imagine your money on the demo account is real, and profits and losses are also real. Remember that if you fail to gain profit on a forex demo account, you will not be able to do it on the real one. Try to learn forex trading, and evolve while using the demo account.
Step 1. Evolving and improving trading strategies
Trading strategies differ, so even the most experienced traders can benefit from using a demo account before trading real money on their chosen platform. For example, they may want to use a forex demo account to test a new strategy, or to use an old one with other assets.
Step 2. Working on trading psychology
Many traders struggle to control their emotions when they win or lose trades. Your goal should be to manage your emotional responses in a way that promotes profitability. The ability to deal with natural psychological reactions, such as hope, fear, or greed, can make the difference between a successful trader and a failed trader.
You can use the demo account to track your psychological condition while opening or closing your trades. To make this work more effective, you should pretend the demo account is real. Try to write down all your emotions while you open trades in the demo account.
Step 3. Money management: creating a trading plan
Money management is a crucial part of your trading system. If the trading strategy tells you when to buy and when to sell, money management helps you determine what sum of money to use.
You may find ideal entry points but still lose money owing to a poor money management system.
A demo account will teach you how to manage your trading funds correctly in each trade you open.
After learning the money management features, working on your psychological responses, and practicing your trading ideas, you will be ready to create your trading plan and switch to a real account.
While you use a forex demo account, we recommend you make a trading journal and analyze your orders after finishing it. This approach helps you fix the mistakes you made and learn from them.
Summary
With the forex demo account, you can practice on real data without any risk of losing money. This way, you will be able to learn everything you need to be a forex pro in no time.