forex demo account

A forex demo account is a great learning tool, and also the best source of first-hand information about forex. Most people who just begin getting interested in currency trading spend too much time reading and not enough time trading. So if you don’t have a demo yet and the subject interests you, don’t waste your time. There is a multitude of links on this site to reputable brokers who will be happy to give you a free demo account. Pick any and play with it. In a couple of days you will know more about forex than you could ever learn by reading. After that, a lot of things you read will begin to make sense. But don’t fall into the demo trap. This trap makes you learn wrong skills if you spend too much time in the demo, and you need to move on to real trading soon in order to avoid it. The popular notion that you need to be able to win consistently in the demo before commiting real money is questionable, because real forex is a very different beast.

The demo is only a simulation. The difference is about the same as between flying a Boeing 747 in a flight simulator and actually landing the thing. By analogy, most people that spend a lot of time playing with fake money, winning contests, and getting high virtual profits with excessively risky trades, often show less than spectacular results when they attempt to do online forex trading in a real account.

The reason why demo is so different from the real thing is two-fold.

The first and most obvious difference is in trader psychology. A great change in behavior happens when the person is aware of risks and rewards associated with a certain action. Would you agree to make a two-week business trip to Paris? How about Baghdad? What if you get triple pay while in Baghdad and can stay at an army base? What if you get triple pay, but need to travel the country alone? The answer is different depending on the circumstances, although the action that you need to perform remains the same. Fear and greed rule the markets, and no matter what you tell yourself, you will act differently while trading with your own real money on forex. It’s a fact of life and there isn’t much you can do about it, except constantly being aware of this effect and learning to adjust to it.

The other and less well known difference between demo and real trade is in order execution.

Demo forex accounts are always handled by a computer. A human dealer is most likely involved in execution of your trades in a real account if your trade is bigger than the minimum, market volatility is high, or your account is flagged for some type of undesirable activity. As a result, your trade can take several minutes to execute, while it is practically instant in a demo account. Unfortunately, the faster the market is moving, the longer is the delay. Especially if you use market orders, the price at which you finally get filled can be very bad.

If that weren’t enough, forex simulation on a demo account does not model the filling process. The demo simply takes the price feed, usually from Reuters, and “executes” your order on the basis of the last available price. When you are trading forex live, especially during high volatility, you will probably experience problems with filling. The dealer may inform you that there is no current price, or when you finally get a quote, it may be way off from what you see in the feed. Stop orders don’t work quite as well, too.

Altogether, demo forex is too forgiving. Your judgement is way better than normal because of the lack of stress. You don’t second-guess your decisions in the demo, and it’s a lot easier to cut virtual losses than to cut the real ones. Order delays and bad fills don’t happen. Stops don’t slip. Because of this, many of the skills that you learn in the demo work to your disadvantage. Of course a strategy that loses in the demo is guaranteed to fail in the real market as well, so this type of testing helps, but it doesn’t work the other way around. Success of a strategy in the demo may or may not be indicative of its real performance. This is why the best course of action is to spend just enough time in the demo to learn the software and market basics, and move on to the world of real trading as soon as possible.

If you don’t have a demo – open one now. Poke forex with a stick and see what happens. Again, any of the brokers presented here will be happy to accomodate you and answer all your questions. Don’t dwell on it, the time to pick the broker that is right for you will come later. Use your demo to learn the functions of the terminal, learn to make trades without silly mistakes such as buying when you wanted to sell, and, most importantly, learn how to use stops. Get a feeling for it. Once you know what you should expect to see in your account when the market moves, decide whether you want to pursue currency trading and accept the associated risks. If you do, read up a bit, it will make a lot more sense with demo trading experience, I assure you, and start to learn the right skills with small, but real money.

Everyone who is making a living on forex now, started with a demo account and learned through practice. Think about it and act today. Find a broker that appears most friendly on this site and open a demo. It is free and there are no obligations – what have you got to lose?

Happy Trading!

source: forex-demo-account.org