A forex demo account is offered by most brokers these days, especially those who want to attract beginners. But are they really such a great deal? or do they have some hidden disadvantages that the brokers are not telling you about? Let's take a look.
Firstly, it is important to recognize that different platforms may work in different ways in demonstration mode. Most platforms will allow some form of testing so that you can understand how they work. But when we talk about a forex demo account, we mean a system where you have a balance of virtual8945180246 funds which will increase and decrease as you trade. This allows you to test systems as well as simply getting to know the platform.
So why do brokers offer this type of virtual trading account, and should we be suspicious? Of course, they want you to be able to try out their platform. They hope that you will find it easy to use and perhaps choose their service over others for that reason. They may also hope that if you make money in your demo account, you will be more likely to invest real money with them. All of this makes natural commercial sense.
There are two things to watch out for when you sign up for a currency trading demo account. The first is whether the demo account does actually work in the same way as the real trading platform. In a few cases, it does not. Traders who are comfortable with a broker's demo system invest money into an account only to have a big surprise, the real platform is not the same and requires a whole new learning curve. It might even be so different that a system worked out in demo mode cannot be put into practice on the live platform. So do check that out before even beginning with a demo account.
Secondly, be aware that there are some big psychological differences between trading in demo and trading for real. Beginners will happily jump into demo trading, often using high leverage and opening trades almost at random, to see if 'it works'. Long term, this type of trading is destined to fail, but in the short term, some of those traders will profit. They could easily think that forex trading is just a matter of leaping in whenever you think prices might be about to move, without worrying too much about analysis, indicators, plans or systems. Clearly, if they switch to real trading with that mindset, they are heading for a fall.
The other problem can come up even if traders use their demo account responsibly and applying a good system with sound money management. They may not be prepared for the stress of real money trading and find that when they try to apply their system to the live market with real money, they panic and find themselves making irrational decisions.
If this happens to you, it is important not to beat yourself up. Live trading does have stresses that trading in demo mode cannot prepare you for. The answer is to start small when you move to the real market. Reduce your risk to half of what you were using in demo, or even less.
Forex demo accounts are here to stay and used wisely can be a very useful tool for the new forex trader.