You don’t have to spend your own money on Forex right away. Most brokers offer practice demo accounts, which will let you test out the Forex market with virtual money using real market data. Using a demo account is a good way to learn how to trade. You will be able to practice by pressing the buttons and grasp everything much faster.
However, everything has advantages and disadvantages. A demo account has them too.
As we said above, a demo account will let you practice your skills without wasting real money. Even if you make a mistake, you won’t lose anything. It sounds tempting but there are pitfalls.
First of all, demo accounts offer a bigger amount of money than a trader will use during a real trade. A trader can choose any amount of money for practice. However, people often choose more than they will really trade with. They take extra money for mistakes. But on the real (live) account, traders won’t have money for their faults. Moreover, with a big capital, the trader doesn’t understand real losses as they are easier recouped by a big capital than by a small one.
Secondly, another important disadvantage of the demo account is the lack of real emotions. It can be described by psychology. When you have nothing to lose, you do not experience fear. Fear influences trader’s behavior and not many traders can control their emotions. As a result, it doesn’t make much sense to practice your skills when you do not how you will behave in a stressful situation.
However, if you follow several rules, the demo account can be a really useful tool for practice.
- Choose the same capital as the one you will have on the real account.
- Try to imagine that the money you have on the demo account is real and profits and losses are real too.
- Remember that if you failed to gain profit on a demo account, you will not be able to do it on the real one, so try to grasp the key elements of trading while you use the demo account.
Furthermore, there are situations when you definitely should use the demo account.
- If you have no idea how to trade on a trading platform. A demo account will help you learn its features and avoid accidental trades.
- If you want to start using a new trading strategy and want to see whether it works for you. You can use demo account for backtesting of this strategy: you apply this strategy to the chart and see whether it could have led to profitable trades in the past. After that, you may try the strategy in real time. This, of course, won’t give you 100% guarantee that the strategy is good, but it’s better than nothing.
- If you decided to use an automated trading program, you can test it on the demo account. Trading program is a robot/expert advisor that is not affected by emotions. It does not matter whether you implement it on demo or real accounts.
- If you came to the Forex market just to check your skills and play on the exchange rates. When you do not take trading seriously, it can lead to the great losses on the real account. If you see it as a game, play it on the demo one.
Making a conclusion, we can say that demo account is a good option for training. You can test your strategies without losing money if they are unprofitable. But you should remember about the weaknesses of demo trading.
Pay attention to the fact that the minimum real deposit at FBS starts from just $1. This means that you can start trading with small amounts of money and thus limit your risks, while still having a chance to reap profits on the live account!
Other articles in this section
- Forex brokers
- MACD (Moving Average Convergence/Divergence)
- Position size, level of risk
- Margin, Leverage, Margin Call, Stop Out
- Swap and rollover
- Transaction, profit, loss. Types of orders
- Economic calendar
- How can I predict where exchange rates will go?
- When is Forex market open?
- Bid and Ask price. Spread
- Calculating 1 pip value for different currency pairs
- What is a lot?
- Calculating profits
- What are pips and lots?
- How to trade?
- Currency pairs. Base and quote currencies. Majors and crosses
- What technical tools do I need for trading?
- The advantages of Forex market
- What is Forex?