The Benefits Of Using A Forex Demo Account Explained 2021

According to the statistics, 87% of beginning traders experience difficulties at the first stages of trading. It concerns both those who have attended special courses and traders who independently studied textbooks and guides on trading on the currency market.

Such a situation can be explained by the trivial lack of experience. That's why many brokers offer their clients a demo account so that you can try out the features of the trading terminal first and get to know the basics of trading without the risk of losing capital.

So, in this article, we will find out what are the benefits of a forex demo account, will discover how to make the most out of demo trading, and will learn how to set up this type of account.

Why New Traders Should Trial a Forex Demo Account, and How to Get Started

As a common way to encourage traders to use their services, most brokers offer free demo accounts to potential or existing clients. Such accounts allow traders to experience what it is like to trade without risking their real funds.

While using a demo account has numerous advantages for traders, it is worth mentioning that the emotions a trader can get when trading in a demo account can be quite different from the real trading experience.

Many people underestimate trading in a demo account, thinking that trading with fake finances does not make much sense. However, it is a misconception. Trading on a demo account is an integral part of any trader's success.

Trading is always long-term work. Many traders are often very enthusiastic and optimistic when they just start trading. However, after a year most of them quit and get disappointed in trading. Why does it happen? Because most of them lose funds and decide that trading is not for them.

However, there are simple steps you can take to avoid such a situation. And trading in a demo account is the most important step. Demo trading can help you save time and resources.

What is a Forex Demo Account?

A forex demo account is essentially analogous to a real account, except that when you work on it, you do not risk your funds. All operations (buying, selling financial instruments, placing pending orders, etc.) are performed in real-time at real prices, acting at the moment on the market, but for virtual cash.

Also, as opposed to a real account, demo accounts often do not have such drawbacks as requotes and slippages, however, on the learning process, which is the purpose of these accounts, they do not have much effect.

Moreover, forex demo accounts are indispensable for testing trading systems, as well as for testing trading robots. In particular, in the trading terminal MT4, there is an opportunity to write and test your own scripts and Expert Advisors (trading robots).

As was mentioned above, a demo account is a compulsory step in a trader's education. Besides elementary skills of handling the interface of the used trading terminal, it gives beginner traders irreplaceable experience of work on the real market (whether it is forex or stock market). Only having achieved stable results in trading on a demo account one can start trading with real funds.

Trading With A Demo Account

Like we said, a demo account allows you to get experience in working with the trading terminal. A beginner trader can, without any risk to his well-being, "press the buttons" and see what happens. A trader can see in real-time how orders are executed and what consequences will result from any manipulations with their parameters.

Working with a demo account allows the beginner trader to get trading experience without affecting his wallet. At the same time, the trader gets an excellent opportunity to master the basics of technical analysis, thanks to modern trading terminals which have a wide range of instruments (indicators, support and resistance lines, different levels and channels, etc.).

And more experienced traders can successfully use it for testing new ideas and trading strategies. After all, it is not always possible to trust in testing a strategy on historical data, it is often necessary to try it out in real-time. And for this, there is nothing better than a good old-fashioned demo account.

Still, we cannot but mention that no matter how similar a virtual demo account is to a real one, but it has one very important difference (besides the fact that trading is done for virtual funds). The difference is that the trader does not experience the emotions that would be inevitably present if we were talking about the possibility of losing (or earning) real capital.

Indeed, trading provides a unique opportunity for practically anyone to earn a huge percentage of the traded amount of funds. For example, in normal conditions, to get 10% of return, you need to deposit in the bank deposit and wait for a year. But the trader, for example in forex, can take leverage of 1 to 500 and get a 100% return in five minutes. Of course, at the same time, his risks will also increase by several orders of magnitude. The point is that all that puts trading on the same level as the performance of an athlete at the Olympic Games.

And the main danger of the demo account is that when trading on it, the trader feels quite relaxed, and when he switches to a real account, he begins to experience increased emotional stress, which often leads to the loss of the entire trading deposit.

In addition, a virtual account can give the trader an exaggerated, inadequate assessment of his abilities. After conducting several successful transactions with a huge amount of leverage and thus obtaining a huge amount of virtual gain, the trader begins to feel invincible. And after starting to trade with real funds, such experiments will inevitably lead to the loss of trading capital.

So, let us move to the benefits of using a demo account in forex.

What are the Benefits of a Forex Demo Account?

Proper use of a forex demo account has a positive effect on trading, improving its results: the number of successful trades grows, the number of losing trades decreases. The trader hones his strategy, slowly bringing it to perfection. Among others, here are some of the advantages of using forex demo accounts:

Learn how to Forex trade risk-free with a demo trading account

First off, when you are just making your first steps in forex trading, you don't know much about all the ins and outs. Basically, you are tabula rasa and should be starting from the very fundamentals. Remember that trying to learn from real trades will not only not serve your purposes, but can also cost you some of your deposit. Since there are no risks in a virtual account with simulated capital, mistakes made on a demo account will not only help you learn how to trade but also avoid (hopefully) those mistakes in the future on a live account. Thus, mistakes made on a demo account will not only help you learn how to trade but also avoid them in the future on a real account.

Needless to say, Forex trading is not an area that can only be covered by reading books and watching trading videos, practical experience is of paramount importance. Demo accounts allow traders to become familiar with the markets and learn how to speculate on market patterns that will eventually come your way. At the same time, we are not saying that theory is useless, no. Start with the very basics and then implement all of that knowledge in practice, in a risk-free trading environment.

Familiarize yourself with your trading platform

Getting acquainted with the trading terminal is a crucial thing to do, especially if you have never seen that before and have never placed an order. Consequently, trading on a forex demo account is a must for a beginner who has just learned what Stop-Loss is. With the help of a trading account, one can easily check different options and orders on the platform without risking a penny by accidentally placing an order with 100 lots.

On the other hand, using a demo account can also be beneficial for seasoned traders in cases when they have always been trading on MetaTrader4, and are now about to start working on cTrader. Yes, they should be similar but it is better to spend twenty minutes to test it and only then switch to a real account.

Learn to manage your emotions

All traders will agree here that one of the most difficult aspects of trading for many people is learning how to manage their emotional reactions to winning and losing trades. Indeed, some get angry after losing 5 cents (even if it's a demo), some get too confident after a couple of winning traders and keep placing new orders being sure that this very trade will also be successful. As a result, all of them end up losing their deposits, as well as any desire to trade after that, being absolutely upset.

So, by experiencing losses and gains, unexpected spikes in the market, and unpredictable events on the forex demo account, the trader will be able to learn to bottle up all the emotions, which can`t but boost the trading results of a trader. Since one of the several features uniting all the successful traders is the ability to stay cool, no matter what happens on the markets and the charts.

Create, develop and test your trading strategies

As it is well-known, the right forex trading strategy is the key to becoming a successful trader with decent performance. Still, it is not that easy to find that very trading approach that will fit you perfectly, matching all your goals and expectations. Hopefully, with the forex demo account, it will be much easier and less stressful to test different methods since you are not risking your real funds. Moreover, a demo account in forex trading is a perfect solution for everyone willing to develop his own strategy thanks to the lack of "financial pressure".

Find the best trading routine that suits you

Trading on the forex market is carried out 24 hours a day, that is why newbies have an impression that it is always possible to earn on the currency market, provided there is only a free minute for trading. In fact, it is not true, as not only trading sessions, but also intra-session periods differ in the degree of activity. Professionals earn, as a rule, when quotes move actively as much as possible. So, it is understandable that no one can start trading successfully right away without getting used to the market, so to say, and without finding out the best time to place and close orders.

Yes, it's time-consuming and challenging, but it will help a beginner trader to see what works better in this or that trading asset. A lot of traders lost thousands of dollars rushing into real trading, so we don't want to repeat the same mistakes - take your time and make use of a demo account to locate the best trading schedule.

The Best Way to Use a Forex Demo Account

Although demo accounts are designed to improve the trading experience and performance of both novice and experienced traders, they have some drawbacks. For example, the lack of real-time consequences and limitless investments. All of that may result in developing bad habits and the best way to avoid that is by treating your demo account as if it was a real one. So, now we will provide some tips on how to make the most out of demo trading.

Create A Trading Plan For A Real Funds Account And Trade It On A Demo Account

The number one thing to do before you start practicing on a forex demo account is to prepare a trading plan. It is a comprehensive decision-making tool for trading activities, which regulates what, when, and how much to trade. In other words, it is an individual guide that is tailored to the temperament and trading style of the trader. It can include anything you find useful, but its backbone always consists of components such as:

A trading plan differs from a trading strategy, which defines only the rules for entering and exiting trades.
Simply put, a trading plan is a roadmap, a ready-made technical guide, a scenario of the behavior in the market. It exists for traders to have a clear idea of what we are doing, for what purpose, and how exactly.

Additionally, the list of parameters is recommended to include:

Behavior in the event of force majeure. Here it is necessary to write down what actions will be taken if, for example, the electricity or the Internet will be cut off, etc.
Emotional states. The moments when the trader won't work should be described here.
Restrictions of losses and returns. Here it is necessary to specify what the trader will do if he gets a huge yield or a line of losing trades.
Complex trading strategies. If several strategies are used at the same time, it is necessary to describe the conditions, under which a certain strategy will be used.
The information sources used. For example: "I'll look through the forthcoming news in the economic calendar, I won't trade an hour before and an hour after the news.

Trading on the forex market consists of many factors, which need to be constantly monitored. Therefore, following a trading plan is a vital part of trading.

Create a trading journal to track your practice trading results

A trading journal or trader's diary is a program or "report book", which displays all trades completed by a trader with their full details: time of opening, volume, type of orders, performance, etc. The form of the trading journal can be any, from manual records in Excel to professional service platforms, allowing to group transactions by various attributes, display statistics in the form of numbers or graphs, etc.

Why do you need a trading journal:

1. Record all actions. It shows data on all existing trades including commissions, swaps, returns over time, and their frequency. Analysis of statistics allows:

2. Discipline. Positive emotional perception of trading and discipline with observance of risk-management rules are the key to success. In addition to the fact that the trading journal allows you to systematize your actions, it helps to overcome laziness.

3. Consolidation of information for different purposes. For example, trading statistics is necessary for attracting investors to your PAMM-accounts or for social trading. Also, it is used for the representation of the working capacity of a trading system with the purpose of its further sale.

Create a goal to transition to a live trading account

Trading on a demo account is a necessary step for those who want to become a successful trader. You can use it to improve your skills, find weaknesses in your psychological state without risking anything.

But how do you know if you are ready for trading with real funds? Unfortunately, there's no ready-made formula. No one will tell you that you have to do it in a month or a year. It's a very individual question. People start at different levels, so it's a decision you have to make on your own.

Still, we are eager to assist you with that as much as we can. We have prepared a little list of questions that you have to answer yes to start trading for real capital. If you have answered any of the questions negatively, we advise you to stay away from the real account until you have closed your gap.

It's a very important question. The forex market is always changing, which means that a trading strategy that works well on a demo can fail after 3 months. Having enough experience to notice changes in the market behavior, you will be able to react quickly and adjust your trading system to the current conditions.

There are so many styles and trading strategies around. Are you sure you've found exactly what works best for you? Make sure you've tried your hand at scalping, day chart trading, automated trading, and so on. You need to have confidence in your system during the ups and downs.

If you haven't traded success on a demo account, then you shouldn't trade with real funds. As soon as you get one losing trade when trading on the real account, your emotional decisions will immediately overtake your rational ones, and it may lead to the loss of your whole deposit. Make sure you're a financially successful trader on the demo.

It is the part that many traders skip because they are lazy or undisciplined. as we have already explained above, in such a way you will significantly improve your results.

Without a specific trading plan, your deposit is doomed to destruction. You must always know what you will do when you receive a signal from your trading system to enter a trade.

How Do You Set Up a Demo Trading Account?

Demo accounts are provided today by almost all Forex brokers because it is beneficial for them to give a beginner the opportunity to learn the basics of trading on the foreign exchange market. After all, if a trader uses a particular broker's platform for training, he is highly likely to continue real trading here as well. And he will not be such a newbie, which will increase the chance of successful trades as well as earnings for both parties.

Traders with demo accounts also get access to at least some of the broker's customer services and support staff so that they can better understand how the broker might be organized if they decide to fund their trading account with real funds.

Traders who wish to open a demo account can usually go to the website of one or more brokers and follow the instructions given there.

When opening a demo account, you may also need to select the amount of virtual capital to deposit and enter some personal information to identify yourself.

If you are concerned about providing your real personal information to a broker with whom you do not have an established business relationship to open a demo forex trading account, you can often use a fictitious name, address, and contact information.

A virtual trading platform provides you with a practical mechanism for trading the financial markets. When you open a practice account, you receive virtual funds that you can use to evaluate your trading performance.

With these types of accounts, you can practice trading without losing your real capital. Several brokers provide customers with unlimited virtual funds, allowing traders to use a practice trading account without having to switch to a real account.

Conclusion

All in all, the main purpose of a demo account is to give you an opportunity to learn techniques, methods, and strategies. It allows you to get to know the platform well and try out various indicators and features of the trading terminal. All of this contributes to the experience you need to gain to move to a real account.

Of course, it makes sense to avoid some of the more common pitfalls of demo trading, such as developing bad trading habits or unrealistic expectations based on different risk parameters and account sizes compared to what you intend to invest in a real account. Still, demo trading certainly occupies an extremely useful place in the arsenal of tools available to both novice and experienced traders.

Traders who wish to open a demo account can usually go to the website of one or more brokers and follow the instructions given there.

When opening a demo account, you may also need to select the amount of virtual funds to deposit and enter some personal information to identify yourself.

The Benefits Of Using A Forex Demo Account Explained 2021