October 21, 2013

Make The Most Of Your Forex Trading Demo Account

This article considers the differences between trading in a forex demo account and a live forex trading account.

Forex Trading Demo Accounts

All new forex traders are advised to open a demo account with their broker before trading live.  Demo accounts with forex brokers are free to open and generally come with no obligations.  However, you have to consider if you are getting the most out of this account.  It is important that you use this account correctly otherwise you are not obtaining the full benefits.

Why Open A Demo Account?

Many new traders do not fully understand why they have to trade on a demo account before they trade live.  This leads to many traders not using the account properly which leads to problems when they enter forex trading live.  A demo account is used to prepare you for the live forex market.  The movements of the demo account are the same as the live account so you can feel the fast paced nature of forex.

The demo account is also used to test your forex trading strategy and system.  It is important that you test this before you start trading with your own money.  On the demo account you have nothing to lose which is good if your strategy turns out to be unprofitable.

Trade As If It Is a Real Forex Trading Account

A mistake that many new traders make with their demo account is remembering that they are not losing anything.  The virtual currency you are trading with does not cost you anything which makes the trading risk free.  Even if you lose a large sum of money you do not have to worry because it is not real.  This leads to excessive risks being taken and many traders carry this across to their live trading account.

When you trade on the demo account you have to pretend that it is real.  When you lose money on the account you have to pretend that you have lost actual money.  This means that your risk management plan should be implemented when trading on a demo account.  You should also avoid diverting from your trading strategy because this is something you should avoid when trading live.

Reconsider the Trading Balance

To get the most of your demo account you should not trade with the full account balance.  The normal balance for a demo account is $10,000 which is a lot more than the average trader is going to have.  There are some brokers who will decrease the amount if you ask them.  If your broker will not do this then you have to calculate how much you would be trading with on your live account and only use that amount.

When you trade with the full demo account balance you are not trading as you would on your live account.  The larger balance allows you to use greater leverage and make greater profits.  This can give you an unrealistic view of what you can make per trade.

Emotion of Trading

Something that many traders find is that the demo account does not prepare them for the emotions of trading live.  This is something that you cannot actually change because no matter how hard you try losing virtual currency does not have the same impact as real money.

You should make full use of your demo account as it will prepare you for when you start trading in a live account.



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