You are a new forex trader, recently joined the game. The most common way to start practicing forex is to open a demo account, where you can practice your strategy with virtual money. How long should you trade with demo account before switching to real cash? Is it necessary to open a demo account or you should just jump in? Do demo accounts differ from one broker to another?
Is Forex Demo Trading Important?
The first thing you should realize is forex demo accounts may differ from one broker to another, therefore even when it comes to practice you have to find the right broker! What are the main differences in free demo accounts? Here are some:
1. Virtual Money
The amount of practice money may differ from $10,000 to $100,000. The more money you get, the more practice trades you will be able to achieve.
2. Time Limit
Some forex brokers limit demo trading to certain amount of days (usually, for 1 month). There are, however, some brokers that offer unlimited demo practice.
3. Minimum Amount
Since demo account is a simulation of the live account, it is necessary to know the amount needed to invest with each trade. Each forex broker differs in terms and conditions of trading. Pay attention to the little things!
4. Hidden Costs
Some forex brokers allow you to renew the demo account for a fee. Make sure to find out how much it cost before you give away your credit card information.
5. Forex Broker
When you look for forex demo account, it is important to find a broker that suits you the best. After all, you do want to open a live account once you finish practicing.
How long should you practice forex with demo account?
Unplanned loss of money in the beginning of your forex journey is almost inevitable. You can avoid some of the harsh lessons if you practice with demo.
Trading with demo account for 3-4 weeks sounds reasonable enough before investing real money. You not only practice your forex strategies, but also test different trading platforms and forex brokers. You need time to find the ones that you like the most!
Apart from learning how the trading platform works, demo account helps to figure out now to open, close and manage orders.
On the other hand, trading with real money makes much more sense than trading for a long time with demo account. Here is why:
1. Forex trading is not only about skills and intuition; it has a lot to do with mental aspect. Your trading decisions and emotions will sharply differ when it comes to your own money.
2. Demo account, no matter how well designed, still hugely differs from the real account. There is slippage, requite orders, slower order executions etc.
Loosing virtual money doesn’t affect you in any way. You simply reload the account and trade on. However, imagine losing couple of hundreds of your own money! That could have been the next fuel refill, or a meal in a fancy restaurant, or even a weekend get away! Greed and fear are two main enemies of every trader. The trick is to train yourself to cope with the negative emotions and this can only be learned by trading the real money.
Of course, this doesn’t mean that you should grab your savings and start trading live right away. Consider practicing with demo account for couple of weeks, then switch to live trading with small amounts. Trade with brokers that allow mini and micro lots, and open an account with no more than $500 for starters. Once you get better (and you will with enough patience and discipline), you can invest larger sums.
To summarize, forex demo account should definitely be in your agenda list. You will get used to placing and exiting orders, familiarize yourself with the trading platform and broker environment, test your strategy and learn to avoid some of the trading mistakes.