Should You Trade Forex with a Demo Account?
Saying ‘Is a demo account necessary?’ – is like saying ‘ it is worth practicing before a sports match’. Of course, it is practice that makes perfect.
There are two kinds of people in the world: those who trade forex using demo accounts, and those who don’t. But which one are you? Perhaps it’s time to change your answer! In this guide to trading forex with a demo account, you’ll learn what demo accounts are, how they can help you learn to trade, and why trading without one may put you at risk of serious financial losses. Learn more here!
The benefits of using a demo account
Demo accounts are essentially play money accounts with no value. They can be obtained by most forex brokers and allow the trader to test themselves with a sample amount in the real market conditions. You can open demo accounts in any size with any leverage and begin learning straight away.
Demo accounts are advantageous for experimenting new skills or strategies. We can test new strategies without risking real money and build confidence through learning how the markets move. A newbie trader can’t always handle the pressure of a live account and I see no harm with demos where they don’t have to worry about losing their money.
The risks and dangers of not using a demo account
As a trader who has traded through both a Live and Demo account. I feel like I managed to get a better grasp of my system through using a demo account. I understood quite quickly that the markets are manipulated, and it helped me develop my ideas to combat that. I never thought of it as a quick money-making scheme nor did I take huge risks with the demo account, I treated it as if it was real money and took responsibility to trade it properly.
I think it can be dangerous to jump in live without some demo trading experience as you can develop early habits and lose the medium to expand your knowledge through back testing. Going live straight away will make the trader instantly short-term results orientated.
Alternatives to using a demo forex trading account.
There are merits to using a small deposit mini trading account or a prop firm to learn on. Most prop firms will carry trading limits which can help assist a trader to take it seriously and build an account with slow risk.
In general, it is always better to start learning basic methods online. Write down all the methods you use, then keep what works and discard the rest. Keep your strategies simple and logical over a long-term sample size.
If you still want to use a demo account, then read this first
I will clarify; the point of a demo account is to get a feel of forex trading; however, it can sometimes create the psychological illusion of not caring about any losses/wins and taking enormous risk without having to confront consequences (psychological side). So, when you use one try to pretend it is a real deposit and take it seriously. Trade with it slowly and try to aim for small, realistic targets each week/month and build up a tolerance for earning the right to trade with larger lot sizes.
In the short term, a new forex trader won’t need to deposit any funds to try trading, however longer term, he/she is most likely to lose his/her first deposit after trading a demo as those are 2 different trading environments as the demo account is meaningless to most traders.
So why not first use a real account before anything else? Some traders may say that using a demo account will make a novice trader overconfident. This will cause him to deposit more money than they would want to initially use for testing purposes. Therefore, they think a demo account is simply disastrous for new traders and is achieving the opposite of what it should. But it all comes down to what you want out of the market and what you are prepared to put in.