Traders who want to get into the Forex game should know that the first step is to always demo trade before entering live markets. However, many traders fail to understand the basic differences between demo accounts and live trading accounts. To put it simply, a demo trading account is what traders use when they want to learn. This account makes use of fake money in fake (but realistic) market conditions, to teach traders how a traditional Forex market functions. Only when they have learnt through demo accounts should they proceed to live markets. Live trading on the other hand, is completely real – and risky! The markets fluctuate a lot in real trades and without practice (and a broker’s assistance) traders are bound to fail.
Let’s take a look at the main differences between demo and live accounts:
1. On demo trading accounts, the environment is very safe and controlled. This is to ensure that the trader has the time and space to learn the very basics of Forex. In a real-time trade however, nothing can be predicted. Especially when it comes to re-quotes. Traders will have to adjust to the market conditions and new quotes in real time!
2. The next matter of discussion is the spread. Spreads are very tight when traders partake in demo exchanges, but in real trades they aren’t so. In real-time trades spreads are usually ruled by liquidity of the markets and the offer given by brokers.
3. When it comes to placing stop-losses, it always seems easy in demo trades. But in real-time trades, you will come to realize that the risk is much higher. This means that even with a stop-loss in place, you will have to play it carefully so as to not lose too much money! Beginners often see stop orders as an easy way out of bad trades. But that’s not the case.
4. One of the biggest differences between demo and live accounts is the data and the money invested. Brokers often pay a sum in order to get access to the market quotes. This scenario isn’t shown when you are demo trading. Likewise, a lot of overhead charges start piling up – which makes it even more necessary to win trades!
However, while all this might make seem demo trading useless – it’s the exact opposite.
By demo trading, you get a strong feel of how the live markets will be. Though it doesn’t exactly prepare you for a full-fledged live trade, it gives you ample room to get accustomed to the Forex space. By demo trading, you will learn the various terminologies used in Forex, how to use a trading platform, and how a basic trade happens.
When you are new to Forex, what you first need is to understand the live environment of a trade. This is why Forex demo platforms were made. To give traders a good idea of Forex without subjecting them to the risks of the same.
Once you start trading on a demo platform, you can slowly transition into live trades. Once you have learnt some concepts like using stop orders, studying signals, etc. you will have enough experience to make small investments. Start off with a small sum of money to experiment while simultaneously learn how a trade works, then slowly get comfortable with bigger sums!
Demo trading is typically only done for a few months. This is the time period traders are given to learn their way around the market! At the end of the day, you will see that even some experienced traders use the demo platforms for testing their strategies and so on. The safe and controlled environment a demo platform offers can serve several purposes to Forex traders. It’s up to you to decide what you will do with it!
You can get started right away with a solid demo platform from WesternFX. One of the leading names in the Forex markets, we have experts who will guide you through every step of the way and ensure you bloom into a fine trader. Call us at +1-646-736-7401 now to know more!