Uses of Demo Accounts in Forex Trade

[sandysr]

Forex trading is one of the oldest ways to make quick money, and for good reasons. And in today’s world, it has gotten far easier when compared to before. With platforms such as Metatrader 4, Metatrader 5, Currenex and cTrader being featured on a whopping majority of the foreign exchange brokerage websites, numerous benefits are offered by these websites that help a trader reap good profits. Especially, the tools and indicators that are available on these platforms make forex trading extremely easy to even the completely inefficient of the forex brokers. It’s especially noteworthy that a majority of trading platforms feature the ‘demo accounts’. These are the things that a trader can use to perfect the art of trading. Demo accounts, especially those demo accounts which are found on the trading Metatrader platform, are extremely helpful when it comes to picking up the ways of the trade, and also for mastering new methods and polishing up ways to implementing them. A lot of novice traders claim to have gotten over the initial trading jitters (arising out of a lack of confidence), after they had practised for a while with a demo account. A few of the biggest benefits which one could get out of using a demo account are mentioned below (shared by easymarkets.com):

1. First, it is completely free of cost, and you need to type in only the basic details (e.g. name, phone number or e-mail) for the registration process to complete. This is in addition to the huge number of ot0her benefits that they get to enjoy from this feature.

2. The traders learn how to execute trades and the ways and means to acquire the requisite skills. Honing your skills and knowing all the possible risks are a must for when it comes to avoiding common pitfalls and knowing what type of situations are appropriate for what kind of strategy. Traders also learn the use of different kinds of forex tools such as Currency Converter, Pivot Point Calculator, Fibonacci Calculator etc. If they happen to use a Metatrader platform, then they would be able to perfect the art of automatically duplicating other traders’ successful trades.

3. Viewing charts and analysing them is another thing that they would be able to pick up by use of demo accounts. These tell when the time is correct to use higher time frames instead of the lower ones. They also learn to use trading robots or ‘Expert Advisors’ as they’re called; so that they can earn some profit while taking a break from active trading.

But all said and done, machines and computer programmes cannot replace human judgment, and conditions in the market are often seen to reverse. A condition that is ‘ideal’ at one moment can turn ‘unfavourable’ at the next. Therefore, a position generated under favourable positions can easily backfire if the trend reverses later on. Also, sometimes the situation is appropriate for a calculated risk, and using robots would mean passing up those chances. So, quit worrying and start trading with robots.

 

[Davemoney]

The one drawback I see with demo accounts is the fact that the trader knows there is no money. This removes the emotion out of the trade. I found I often have better results on demo and have to be careful when trading live because when I am afraid of losing money I make impulsive decisions.

 

[timsk]

Forex trading is one of the oldest ways to make quick money, and for good reasons. And in today’s world, it has gotten far easier when compared to before.

Hi sandysr,
Ordinarily, I'd welcome a new member to T2W. However, in your case, given the utter nonsense you've written in the first two sentences of your debut post, it makes it extremely difficult to read anything else you say with an open mind.

Retail forex trading is a relatively new phenomenon and making money doing it is anything but easy. And the only thing that happens very quickly is the speed with which 'get rich quick' punters blow up their accounts.
Tim.

 

[malaguti]

However, in your case, given the utter nonsense you've written in the first two sentences of your debut post
Tim.

classic

 

[JoshR]

 

[doodboy]

good point. I agree the psychology is missing when your trading play money vs. real money but never the less you develope a skill-set. Many people i know end up joining live too soon and lose a big chunk then fall into cycle of revenge trading and digging deeper hole for self... So keep a demo account for 6-7 months and go live. My 2 cents as a 8 yrs experienced trader.

 

[SmartGeek]

Demo is the most important aspect and every trader should practice Demo before entering the real world of Forex. It is the best way to get acquainted with Forex.

 

[progix]

I believe that demo account trading is very useful in learning forex trading processes and strategies as well as it could be the biggest asset of any successful trader. I still practice with demo accounts to back test any strategy before applying it to my live account and most of the time i get success in making some good profits on my investments.

 

[SmartGeek]

I believe that demo account trading is very useful in learning forex trading processes and strategies as well as it could be the biggest asset of any successful trader. I still practice with demo accounts to back test any strategy before applying it to my live account and most of the time i get success in making some good profits on my investments.

That's great to hear, you need to practice Demo Trading adequate enough to step into the real world of Forex.

 

[doodboy]

good job guys, that's the spirit. Only foolish guys jump to live trading before testing waters for sometime on Demo. Indian(SmartGeek) n Pakistani(progix) agreeing on something, how often do we see Indians n PK's agree? haha let that be a sign all you demo traders, continue..

 

[Jason Rogers]

The one drawback I see with demo accounts is the fact that the trader knows there is no money. This removes the emotion out of the trade. I found I often have better results on demo and have to be careful when trading live because when I am afraid of losing money I make impulsive decisions.

While I know many traders share your opinion on demo trading, I have different view. I don't think emotion in trading is a good thing whether you're trading on a demo or trading live, because, as you said, emotion leads to impulsive decisions.

If someone is emotional about their live trading, I think it's a sign they are risking too much money. Nowadays, you can open a mini account with as little as $50 and place trades as small as one micro lot (1000 currency units) risking only 10 cents per pip, so there is no reason for someone to risk more than they are comfortable losing.

If someone is not comfortable losing any money, then they can demo trade indefinitely to build their confidence and hone their strategy. I've traded live for over 20 years (first with stocks, then futures, and now forex) and I still continue to use demo accounts to test new strategies. I won't trade a strategy with real money until I am confident with the results I see on demo.

In my experience, the correlation between your demo performance and your live performance will depend on the following factors:

1. How realistic are the trade sizes you are using?

A demo account might default to a starting virtual balance of $50,000 but what amount are you looking to invest? Keep your trade sizes realistic to the capital you have to invest. As a general rule of thumb, try not to exceed 10:1 effective leverage. That means you should consider opening no more than one micro lot (1K) for every $100 in your account. That means if you invest $10,000, you could trade up to 100K or 100 micro lots and still stay within 10:1 leverage.​

2. What percentage of your equity did you risk on your demo trades?

With virtual money it's easy to stay calm when you equity drops 20%, because no real money is at risk. With a live account, such losses are hard to stomach. For this reason, try not to risk more than 2% of your equity on any trade, and by that I mean 2% of the equity you plan to invest with real money (not 2% of your demo account balance which might be higher). So if you plan to invest $10,000, then try not to risk more than $200 on any single trade. Note that you can still place long term trades. For example, on a 1k micro lot trade, you're risking 10 cents per pip, so with $200, you could risk up to 2000 pips.​

3. Does your demo trading strategy rely on perfect liquidity? (which does not exist in the live market)

Investopedia defines liquidity as follows: The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

For example, EUR/USD is the most liquid financial instrument in the world, but even for that most liquid currency pair, the liquidity will drop during news events. If your demo strategy is longer term and doesn't place trades during news events, then your results on a live account with the same trades would likely be comparable.

However, if your demo strategy relies on getting filled at the exact price you requested during news events, you may find that such a strategy will not perform as well in the real market. That's because no demo can replicate the liquidity or lack thereof during major news events. That means your real market orders could be more prone to slippage.​

 

[epic_research]

Demo accounts helps to learn trading in more efficient manner. And learning mistakes here can help traders improve their future returns from market.

 

[SmartGeek]

In my opinion, trading with demo will help you but if you dont take demo as serious as you are going to with real then it is just not good idea. So be serious and mature when you start demo account for learning.

Yes, of course. If you are not serious enough in Trading with Demo, you won't learn anything. You cannot make money if you don't learn it seriously. Demo will be just a waste of time then.

 

[NVP]

beam me up scotty

 

[Alexander1]

The demo is a good helper for beginners, and it is necessary to dumb seriously like it's your money. then you will learn

 

[SmartGeek]

I think Demo is the best way to become successful, you need to have enough Demo Practice before you enter the real world of Forex Trading.