This article looks at using the demo account as part of a forex training course.
It is highly recommended that all new traders undergo some form of forex training before entering the foreign exchange market. There are those who are enthusiastic about trading and ‘jump in head first’. Sadly, these individuals experience detrimental losses early on due to inexperience, often leading to account depletion. Those who have some training will be able to learn from the loss and may not experience as disadvantageous trades. This ability to trade can be learned through using a demo account.
The forex training or demo account
A demo account is a practical form of forex training whereby one is able to trade in a simulated foreign exchange market. This provides you with the opportunity to learn and practice forex trading skills, such as creating a trading plan, developing a strategy and executing trades.
The demo account can be opened via a forex broker within a few minutes and, unlike a forex live account, does not require personal details to do so. As in the forex live market, there are various sized accounts from which to choose. It is recommended a new trader open a mini account as this will allow you an account trading balance that is easy to manage. The reason for different size accounts is because demo accounts are not used by new traders exclusively; experienced traders will practice new strategies before utilising them on the forex live market.
While a demo account can be highly effective as a means of practical forex training, there are certain disadvantages. One problem is that the demo account creates unrealistic expectations for the trader. On the forex live market one is required to wait for a trade order to be placed. This is due to orders being placed in a queue. However, the demo account allows for instant order placement which creates an unrealistic expectation and, in some cases, mistrust in forex brokers.
Another difficulty seen among new traders is a disregard for risk management. The demo account allows traders to practice using virtual money, thus allowing for risky and non-consequential trades. However, the forex live market sees one trading with personal capital where a loss can have damaging personal effects. Those who do not readjust their mindsets will incur detrimental losses and face bad trades as if they had not experienced any forex training.
Using the demo account
The purpose of trading on a demo account is to hone your trading skills in a practical, yet virtual trading arena. It is advised you keep the experience as real as possible implementing the trading strategies as you intend to use them in your forex live account. You should also keep a trading journal in order to track all trades and the behaviour you showed during those trades. This will provide you with the opportunity to review your progress during training. If you are suffering continuous losses, then you must identify the behaviours causing the loss and rectify the problem.