Forex trading is a game of experience above and beyond anything else, and the value for traders in learning the lessons of experience is substantial. Unfortunately, given the massive degrees of leverage that are involved, the risks of trading in the market in even the most docile conditions are sufficient to make gaining experience potentially costly. In the face of a baptism of fire, the forex broker industry has come up with an ingenious way of providing the best of both worlds – through virtual, or demo trading.
Demo trading takes place on the real markets, but just the positions and cash involved are virtual. Apart from having no effect on your bank account up or down, demo forex accounts have all the same characteristics of normal trading accounts, and therefore provide arguably the most comprehensive training aid available.
Demo forex trading is beneficial in a number of respects, and there is much to be learned by the new trader engaging in trading a demo account. Firstly, you gain access to trade the markets for real, but yet you don’t risk any of your own capital. This means you can learn how the markets work, effectively practice your trading strategies and approached, and test of the merits of different strategies as you prepare to hit the markets for real.
Why Forex Demo Account?
As an inexperienced forex trader, you might be forgiven for thinking at this point that the strengths of trading a demo account make it a hands down, no brainer of a trading tool. In fact, to create such an image would be false, and there are drawbacks to trading through a demo account, and shortcomings that you should try to address before you get too heavily involved in trading for real.
For all intents and purposes, the only thing that varies between demo forex accounts and real accounts is whether or not you can spend the winnings, yet this alone gives many traders reason to underplay the effectiveness of demo trading. The suggestion is that as a trader with no stake in the game, it’s hard to replicate the actual degree of risks you face and how you approach them when you’re actually trading your own money, which of course is the only time your trading counts.
This is a valid criticism, and even with the best of intentions, trying to replicate the adrenaline and pressure of real time trading is not as easy as it sounds. For this reason, many traders can be drawn into a false sense of security whereby it seems as though they are performing well, but in actuality they are taking risks they wouldn’t normally take, and trading in a completely different way to how they would trade normally. Essentially, while demo trading is valuable, there still remains no substitute for trading your own capital and risking your own hard-earned money.
For forex traders looking to get started and gain some experience prior to staking their own cash, the role of the demo trading account should not be overlooked. Of course, it’s not without its limitations, and some traders very credibly argue that demo trading is sufficiently different from the real thing to be of much use. But from the point of view of learning how the markets work through to the practicalities of how to actually execute on a trade, there is no greater training aid for boosting your trading success than time spent trading a demo account.