Forex trading can be a very profitable endeavor as the currency market is one of the most liquid and volatile markets, where the trade volume exceeds $6.6 trillion on a daily basis. It is also the biggest trading market on earth, as traders from all over the world buy and sell international currency pairs to gain from favorable exchange rate fluctuations.
This proves that the forex market is a place full of opportunities for anyone and everyone who is keen to learn and become a skilled trader in the long run. Learning and developing any kind of skill is a result of continuous practice. Forex trading is not an exception; hence, we have forex demo accounts for beginners who need practical learning before going live.
So, this article will be your beginner’s guide to demo Forex accounts so that you can easily get started with demo trading for the very first time.
What is a Forex demo account?
A Forex demo account is a replica of a real trading account where you can open and close trades in real-time market conditions. The very purpose of a forex demo account is to simulate a trading environment that is identical to the actual forex market so that the trader gets hands-on trading experience. But just as the name implies, a Forex demo account is just a demonstration, and the trades that are opened in this space have no effect on the real market.
Now the most important aspect of a Forex demo account is that you will not be risking any real money in the process for the sake of trading experience. The broker you choose to open a demo account with will be funding your demo account with virtual money as capital. The trader is free to use this virtual capital for trading without any restrictions. After spending a good amount of time practicing in a demo account, you can trade any forex account type that you think is suitable according to your trading style.
A total beginner trying their hands at trading risks losing a lot due to their inexperience and lack of knowledge. But since the demo account is funded with virtual capital, the trader can practice and experiment without worrying about the potential losses during the learning process.
That is why all beginners are suggested to start with demo account practice before trading with real money. Also, most brokers provide a free demo account and that allows newbies to explore the forex space and learn before making any initial investment. Later, they can easily transition to a live account and proceed with trading. They also get an opportunity to test the trading conditions offered by the broker beforehand. This is essential for choosing the most suitable broker per their trading style and developing the right trading plan.
How to open an MT4 demo account and start trading?
MetaTrader 4 or MT4 is still the standard platform for forex traders. MT4 is the classic and traditional forex trading platform that would be perfect starting for a beginner taking baby steps into the forex space. MT4 combines simplicity and powerful trading tools in one place, and thus it can be the perfect platform for newbies to take their first trading lessons on a Forex trading demo account.
MT4 is also the most widely used platform among traders, and most brokers provide it as well. You can easily sign up for an MT4 demo account with a broker of your choice. You can start with demo trading immediately to practice and polish your skills as a novice trader. Even though MT4 is the most popular choice among newbies, you can open a demo on any platform you prefer.
Once you receive your login credentials, you can go ahead and log in to your demo account without any delay. The process of trading is similar to a live account, but just like we mentioned earlier, the capital you risk will be just virtual or fake money hence your profits and losses will not be real. You won’t have to bear the losses but will be unable to make any real profits if you win trades on a demo account. But you still get to experience trading and practice with all traders’ tools to prepare for live trading later.
The Recommended Time Period for Demo Account Practice
The time spent on a demo account will surely be of use once you start trading for real. You will be able to equip yourself with more knowledge and skills with the practical learning experience that you get from a demo account. Experts do suggest 3 to 4 months of demo account practice to enhance your trading skills. But those who plan to use short-term trading strategies such as scalping with 1-minute charts can shorten the practice period to 1 month or less.
But still, every trader is different from others, and the time taken for learning will vary based on their aptitude and grasping power.
Some traders even skip the process of demo trading and prefer to live to trade with a small capital on a micro account instead. But trying your hands at a demo would be more appropriate as you also get to test the trading conditions and platform functionality of the broker you plan to try for live trading.
Even experienced traders can make use of demo accounts to draw a comparison between brokers for switching to a better one. Another perk of using a demo account is that you can forward-test your strategies on real-time market conditions, eliminating the drawbacks of backtesting. So, you get a chance to improve and revise your strategies before risking real money with the strategy.
Drawbacks of the Demo Account
- Because real money is not involved in the process, traders may lose interest as their profits won’t be actual.
- Since there is no risk of losing real money, traders may be unable to learn the important risk management rules from demo trading alone.
- Traders do not get a chance to work on managing their emotions as the feeling of demo accounts being a simulation will stop their minds from experiencing the emotions that arise in a live trading situation.
- Being profitable on a demo account does not guarantee the same results on live trading, as real trading involves real risk.
Tips for Using Demo Accounts Properly
- Use your demo account capital the same way in which you would use your own capital. This will help you to develop a disciplined approach towards trading.
- Avoid over-trading on demo accounts even if there is no risk. The habit of over-trading may be hard to let go of later on, which is dangerous in live trading.
- Trade seriously and try to follow a strategy just as you would on a real account. This will make the transition from demo to live account easier for you.
- Take your time to make mistakes and learn from them since it is the primary goal of demo trading.
- Keep your expectations realistic when you leave your demo account for live trading, as the results will not be the same.
So, demo account practice is an integral part of learning when you are fairly new to the currency market. But demo trading would only be of use if you learn to use them properly to become better at what you do. Demo accounts allow us to experience risk-free trading before moving forward. This experience can be used later as you open a live account.
The purpose of demo accounts is to set a strong foundation for learning so that you can easily build your trading career as you gain more experience and knowledge to grow as a trader.