Forex Demo Accounts – What are They?

What are Forex demo accounts? To put it simply, these are “simulated” accounts offered by Forex brokers to showcase their trading platforms in the hopes that you will put your future “live” trades through them. These are useful for testing out your trading strategies without risking any real money.

When you open up a Forex demo account, you will start out with a notional amount of “play money” that you can use to trade, much like you would with your real account balance in a “full account”. Typically, most brokers will give you $100,000 to start, which is more than enough money to play around with. With this money, you can buy and sell any currency pair to your heart’s content, with price quotes that are mostly in line with real market conditions.

Video Explaining the Ins and Outs of a Forex Practice Account:

 

The Pros Of Forex Demo Accounts

The good thing about Forex demo accounts is that you can simulate real trading without having to deposit your money into an account and put that money at risk with trades. The downfall of many beginner Forex traders is that they let the “money” aspect influence their trading decision making. By taking the “money” aspect out of the equation, you can train yourself to make good trading decisions based on your predefined strategy or system instead of basing your decision on how much money you are making or losing at any given time.

Many successful Forex traders have used Forex demo accounts to hone their trading skills long before they committed any real money to their trading accounts. That’s not to say that everyone who trades on a demo for a long time before they trade “live” will have the same results, but if you’re serious about your demo trading and treat it just as you would if real money were at stake, then you’ll definitely benefit from the experience.

The Cons Of Forex Demo Accounts

That said, it’s not easy to train your mind to treat the “play money” in a demo account exactly as you would treat “real money”. Many traders have had stellar performances on their demo account trading because they didn’t have the pressure of real money at stake, only to lose and lose big on a live account when they made the switch. When it all comes down to it, it’s not the practice on the demo that makes the difference so much as your capability to control your emotions once you’re trading real money. Of course, it helps to have faith in your strategy and your track record, but it’s easy for things to go into a downward spiral if you have poor emotional control.

One thing you need to be aware of with demo accounts is that they are not always in line with the real market prices. This is something that differs from broker to broker, so you’ll have to monitor the price quotes and the price histories between the demo and the live account for your broker of choice. If you’ve got a good broker, you’ll have no problems in this regard, but as we all know not all Forex brokers were created equal.

This is especially important if you’re using your Forex demo to do a “forward test” of an automated Forex trading system. While this is a smart way of gauging the profitability of a system without putting any real money at risk, your results are only as good as the ability of your demo account price data to mirror the real trading conditions it will face once you invest real money into trading it.

How You Can Use Forex Demo Accounts To Your Advantage

At the end of the day, if you understand the strengths and the weaknesses of Forex demo accounts, then you can use them to your advantage to make yourself a better Forex trader. Don’t be afraid to open up a few demo accounts with different brokers at a time, and shop around to find the provider that gives you the best price data and the most comfortable and intuitive platform.

Most importantly, remember that your success as a Forex trader really depends on the mental attitude and emotional control that you bring to the table, in addition to the practice you get from trading on a demo. So use Forex demo accounts as a tool to hone your skills as a trader, not just from a technical standpoint but from a mental and emotional one as well.

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