There are decided advantages to making use of a Forex trading account and there are some disadvantages. It is important to have a clear idea of what the advantages and disadvantages are before you go into signing up for a demonstration account or ignoring the idea of it entirely.
Benefit of a Forex Trading Demonstration Account
Several benefits exist when it comes to a demonstration account, but by far the largest one is the fact that a demonstration account can be an excellent tool for practising before getting into the market with your own money. A demonstration account or demo account is designed to be used as a training tool.
If you are a beginning trader, using a tool such as this can be a powerful weapon in your arsenal and definitely something you should consider seriously if you are planning on becoming a serious trader in the foreign exchange. This type of account allows you to get a real feel for the market and to trade as if you were trading on the market in real time. However, the money you are using is imaginary in many cases.
There are some accounts that are designed for demonstration purposes that require a small deposit. This type of deposit is significantly less than the ones required for active trading accounts. You get the opportunity to try different strategies and learn how the market works and how to use the necessary tools when you are Forex trading.
Risks and Disadvantages
While the benefits are attractive, using a demonstration account for Forex trading is not without its disadvantages. The biggest disadvantage comes in the risk taking involved. The majority of demonstration accounts are accounts that make use of imaginary money. You can do whatever you want, make all the mistakes you could possibly make and there are no repercussions. The account generally adds more money to allow you to continue.
The result is that you might, as a beginning trader, be more likely to make trades you would never consider making with your own money. While this in and of itself is not dangerous, what comes with it can be. Taking risks is very much a part of Forex trading but not everyone is a risk taker, and just because a risk worked out in a demonstration account does not mean it will on the active market.
Many people take huge risks when playing with a demonstration account, attempt the same thing with their money, and have disastrous results. The best way to mitigate these issues is to treat a demonstration account as if it was a real account and the money was really yours. Trade as if you were playing the active market.
Another piece of good advice is not to leave the demonstration account before you are comfortable with everything you have to deal with on the market. This is important because you want to make sure you are ready before you begin forex trading for real.