Many traders want to be successful in forex and earn money. This is a laudable vision and a very possible one too. But before anyone can be successful in anything, it takes a great deal of practice. Even with forex trading, before funding a forex account with your hard earned cash and placing trades, you need to sharpen your skills with practice, and you can only practice without getting hurt on a demo account.
What is a demo account?
A demo account is an account that allows newbie traders and even older experienced traders to horn their forex trading skills without losing money. A demo account is similar in every way to an actual live account. The only difference is that you don’t demo trade with actual money. Your forex broker will give you virtual money to trade with on a demo account, and you can learn how a real account functions without losing a penny of your money. Just like real live accounts, a demo account allows you to place buy and sell trades, access to real time market changes, even the gains and losses with virtual money are real. Even though it doesn’t affect your bank account, the euphoria of gains and disappointments of losses are real. A demo account helps you make mistakes and learn from those mistakes so that you won’t make them when trading live with your real cash.
What are the benefits of demo trading?
Demo trading allows you to develop and build your real trading strategies in a demo environment. This system allows you to try out as many strategies as you want until you get one that you feel suits you best. Demo trading will help you as a new forex trader to build up your confidence. Whenever you try a strategy that works for you, and you find yourself making fewer mistakes as the days go by, you will feel more confident in your system and in the possibility of opening an actual live account. Demo account also gives the trader the time and opportunity to build the discipline needed for trading in the forex market. If you trade carelessly with your demo account, chances are you will do the same with a live account. A demo account is a platform for traders to build and nurture habits that they would carry into their live trading. If as a newbie demo trader, you take up positions where there is no secure trade setup, you will most likely do the same with a live account. A demo account gives the trader a risk free trading environment where you can groom yourself into an expert trader.
A few tips on demo trading
- Take your demo trading as serious as you would a live account: Of course, it is virtual money and nothing will happen if you lose it. But if you are in the habit of constantly zeroing the balance on your demo trade simply because it is not your money, then you have no business trading forex. You can zero out your live account as easy as you zero out a demo account, there is no built in fail safe that detects that one is a demo and another is a live account.
- Continue demo trading until you can comfortably repeat your success as a demo trader: Don’t be in a hurry to open a live account; the account will still be there for as long as you want. Most demo traders once they can make a few bucks feel they are ready for a live account. Once you cannot comfortably and confidently repeat any success you have in demo trading over and over again, then you are not ready for a live account.
- Fix a target and meet it: Fix yourself a monthly profit target as a percentage of your original capital and try to meet it every month. This means that if you started out with £1000 and you fix a target of 10%, you should be able to consistently build up on 10% every month. Only when you are able to make consistent profits in your demo trading, then you are ready to open a live account.
- Your demo account has to be the same size as your live account: If you intend to open a live account with £1000, then you must do your demo trading with £ This way, you trade under the same conditions and it helps you take the process serious.
Forex trading takes a lot of discipline. If you ever want to be successful as a forex trader, then starting out as a demo trader is the best education you can give yourself. Once you feel confident of your skills and strategies, you can move on to live trading.