A forex trading demo account is an account that allows a new forex trader with little or no understanding of forex trading to review/ test the features of a trading platform or software before funding the account or placing trades. This trading demo account aside from testing the efficiency of the trading software also helps a forex beginner to have an improved trading skill.
A forex demo account is fully funded with stimulated money or fake dollar and this allows the investor or trader to carry out fictional trades in other to maximize his trading skills and become familiar with ins and out of the trading software. Forex demo accounts allow a trader to test different strategies such as carry trades in forex.
ADVANTAGES OF USING A FOREX TRADING DEMO ACCOUNT
Using a forex trading demo account is the best way to understand how the forex market functions and how various currencies in the world are bought and sold by forex traders. A demo account does not require any form of capital whether in the account opening or in the actual investment meaning that a trader can learn how to trade without shedding a single amount of money.
Most forex demo trading scenarios are typically based on real forex trading situations and this means that by using a demo account, a trader can get familiar with different controls and the price fluctuations of currencies. This demo accounts are being traded with fake money therefor, it eliminates fair of losing hard earned capital in other to get acquainted with the trading system.
The use of a forex trading demo account also helps new traders in developing trading strategies and how to trade carefully in the ever fluctuating forex market. It also helps traders adapt quickly to the market movements. Losing money in the real time market is very easy and demo accounts usually avoid it in the first day of trading.
DISADVANTAGES OF USING A FOREX TRADING DEMO ACCOUNT
The major advantage of using a forex demo account is that it trades using a virtual/fake money which has no value in the real world. A trader that uses a demo account won’t care if he loses his money therefor, no matter how real a demo account seem to be, it will always not involve the risk of losing real money. Because of this fact, a trader will not know how volatile a real market is and some will become carless with the money.
Achieving success while using a demo account is not a good indicator of how a trader will perform in a real trade situation. They are a lot of new traders that thinks that they can make huge money and profit after trading well in a demo account. No, 70% of trades in the forex market end up in losses due to currency price fluctuations.
In conclusion, forex market is one of the most risky markets in the globe due to the ever rise and fall of currency prices. So, whether a trader is using a demo account or a real time account, there is never a guarantee as to if he will acquire profits or encounter losses. The best path to a successful trade is to keep your emotions in check and not giving into fear nor greed.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.