Forex trading accounts are usually divided into two main categories – live and demo accounts. Live accounts are used for the actual trading with actual money, however, many beginners are wary of going straight into opening one.
Thus, demo accounts exist to allow traders to practice their skills and acquire additional knowledge without having to risk their hard-earned funds.
What are the main advantages of using a demo account to get started in Forex?
Although a demo account may seem like a good option for those who are only beginning their journey towards the career of a successful Forex trader, it may not be for everyone.
To help you determine whether or not you need a demo account for trading, we have drawn out a comprehensive list of the main advantages and disadvantages of using one.
- The most obvious advantage of a demo account is the fact that you can use one to learn some basic trading skills and avoid the common mistakes that beginners often make, for example, opening a position by accident.
- Moreover, you can determine which of the trading assets you are interested in trading the most. If you approach this choice with enough dedication and spend some time researching each individual instrument, its historical value, and the volatility levels associated with it, you may end up finding something that will ultimately bring you the most profit in the future.
- Similarly, a demo account can be used to try out different trading strategies, and examine how each one of them behaves and single out the one that produces the results that you seek. Often, some of the advanced traders use a demo account for that same reason.
- As for the useful skills, one other important one that you can acquire by practice-trading with a demo account is the best time to open the position. Depending on your trading style, you will be able to learn how the prices change over a few hours, or within 2-3 days.
- Finally, it is often recommended that you open a demo account with the same trading platform that you intend to use in the future. This way, you can learn to navigate it easily and explore all the specific tools and features that it has to offer. On top of that, once you transfer to the live account, you won’t have to learn how to use a specific trading software from scratch.
As for the disadvantages of using a demo account, professional traders usually reference one specific shortcoming – a demo account cannot be a full substitute for the actual trading with real money.
Unfortunately, a demo account, no matter how realistic it is, cannot account for some of the major factors that can have a significant impact on the success of your real trading sessions. A good example of that would be the emotional state of the trader, which is almost impossible to replicate when you are trading with refillable, virtual money.
So, is a demo account a good start for beginners?
Overall, a demo account is very useful, however, a lot will depend on the way you approach it. The best way to do it would be to treat it the same way as you would treat the actual account.
In doing that, you should try and use smaller sizes of the deposits, to keep the overall experience as realistic as possible. This way you will also be able to avoid high risks and impulsive trading, which is not likely to occur when your actual money is at risk.
Moreover, it is recommended that you come up with a certain trading plan for your demo account and stick to it. This way, you will be able to monitor your progress, and move on to the live account once all of the objectives that you set out for yourself are achieved.