Foreign Exchange Trading Demo Account
It is recommended by most foreign exchange trading professionals that you make use of a demo account before you start live trading. A demo account will give you the opportunity to test your trading plans and strategies. This is an ideal method of testing as you will not be using your own money, and if your strategies are faulty, you will not lose money.
Demo accounts are usually set up with a specific available balance. It is normally quite high and the average person is not going to commence live trading at that level. You should request a reduced balance on this account as it will then provide you with a figure as close as to the one you will commence live trading with. It is possible to enable this reduction by contact with the provider of the account. Most sites allow contact by email or via their live chat support.
Your best option is to settle on an amount of approximately $5,000. You can use a lower balance if you wish as it will enable you to get a better view of what your profits or losses will be when you go live.
Foreign Exchange Trading Currency Pairs
You should limit the currency pairs you trade. The temptation to trade with several pairs is high when you are working on a demo account. You should demo trade with the pairs you are most likely to choose on your live account. If you are a beginner, your best option is to trade USD/EUR. It is advisable to trade the US dollar with other currencies, preferably one of the majors, as this is where most of the movement normally occurs.
Practice trading with one currency pair will also provide you with experience in that particular pair which will stand you in good stead later on. Learn as much as you possibly can about your currency pair.
Demo accounts are often set up with high leverage margins. You should request a reduction in this to a maximum of 20:1. This will allow you to trade with lower leverage which is what you would normally do. It is inadvisable to use the high leverage that is often offered by brokers as this could place your funds at risk.
Demo vs. Live
Demo accounts carry the exact functionalities as that of a live account. You will be provided with a demo account which will allow you to learn to trade with the broker’s trading platform before you make a decision. It is a wonderful opportunity to learn to trade and to see if you like the platform that the broker is offering. The main difference between a demo and live account is that you are not trading with real money. Other than that, demo accounts are exactly the same as live accounts.
Once you have had the time to play around with a demo account and you feel confident that you know the trading platform, you can go on to start trading for real. The experience you gain on your demo account will stand you in good stead to commence, but it is important that you continue the learning process to keep up to date with events in the foreign exchange trading world.