Unless you have a crystal ball, which can predict what will happen in the next two minutes, you should trade on a forex demo account.
There’s no guilt in demo trading. Everyone does it. It’s where all the pros first sharpened and developed their forex trading skills before taking the plunge.
What is a forex demo account?
For those of you who don’t know, a demo account is a trading account that you can open on almost every type of trading platform and helps you get a feel of the real market.
In a demo account, you can practice using the online platform in a simulated live trading environment without depositing your own capital.
Why should you trade on a demo account?
Trading forex can offer limitless opportunities; however, before diving in, it is critical to test the waters first, which is why a demo account is recommended.
A demo account allows you to get a realistic feel for what it’s like to trade currency pairs in the forex market without danger.
The forex demo is an excellent way to learn about the trading platform’s user interface, determine what works best for you, test tactics, fix any mistakes you make, and learn about the platform’s functionality and efficiency.
It is much preferable to learn how to position orders and set stops on a demo rather than with real money at stake.
Let’s take a look at some of the reasons why you should test your trading skills on a demo account.
1. Getting familiar
Even for seasoned traders, jumping right into live trading leaves no time to discover the platform and its different functionalities.
The first step is to get acquainted with the platform. For example, if you want to use MT4, you can learn about the different order forms, technical indicators, and how to use them. You can learn how to use stop-losses and where they should be placed.
You can also practice navigating the platform, finding live news streams, reading currency quotes, and dragging various indicators to the charts with a demo account.
2. Keeping your emotions in check
When it comes to putting money at risk in order to make money, a lot of emotions will come into play. After a few profitable trades, excitement and overconfidence will come into play. After a few losing trades, frustration and doubt will enter. These emotions will often cloud a trader’s decision on their next trading opportunity.
Trading on a forex demo account assists you in identifying these emotions so that you can develop a routine and strategy to deal with them. Most new traders have no idea what kind of feelings they would experience while winning and losing, so it’s best to find out without putting any real money at risk.
3. Back to the drawing board
Demo accounts, contrary to popular belief, are not just for new traders. Experienced traders also return to them to test new ideas and fine-tune current ones. If a person has a losing streak, demo accounts can be a good way to understand the technique’s flaws.
It is a good way for new traders to learn how contract sizes impact profit margins. When you place a trading order, you can also see how forex spreads translate in real-time. You learn how to implement new ideas and approaches for enhancing profits while minimizing losses and they can evaluate the techniques before applying them in live markets.
Many platforms, such as MT4 and MT5, have trading robots or algorithmic trading options, which need some testing to implement in the proper configuration. Traders can also learn how to design their own indicators. Gaining the ability to trade without losing capital can lead to increased innovation in terms of testing and determining what works best for you.
4. Developing a trading routine
Forex traders trade 24 hours a day, five days a week. So, when is it best to trade? Most traders tend to trade at the start of the Tokyo, London, and New York trading sessions, which are at 12 a.m., 8 a.m., and 2.30 p.m. GMT. But, the best time to trade is when you can concentrate on the markets.
One of the best things about the forex market is that you can build a trading schedule that suits your work and personal life. When you first start out, though, it can be difficult to find the trading routine that works best for you.
You don’t want this to lead to bad trading decisions, which will ultimately result in real money losses.
Trading on a forex demo account can help you to find the best routine that suits you before dipping your toes in the live forex pool.
Remember: Trading is a marathon, not a sprint!
From demo to live
The day will come when you want to move into a live trading account and try to reap the fruits of your countless market analysis in real market conditions. However, when the day arrives, it is entirely up to you.
So, the key question you should ask yourself is, “What must happen first before you make that transition?”
Some traders enjoy setting goals. For example, it may be hitting 10% on your demo account money balance, or completing 20 trades, or achieving three months of profitable trading. One advantage of beginning with a demo is that it will provide a smooth transition into a live account. The charts you use and your trading plan will remain the same.
Bottom line
When you first start trading, you need time to concentrate on improving your trading practices and developing good habits.
You’ll also need to be exposed to various market conditions and learn how to adapt to different approaches as market behaviour changes.
So, the best way to learn the forex market is to trade on a demo account.
Paste this on your trading desk:
“Before putting real money on the line, I’ll demo trade until I develop a strong, profitable system.”