Forex Demo Accounts – How does it work?
Well, a forex demo account has all the features of a live forex account, except the funds in the account is just virtual. So its also called as a virtual forex account. If any broker supports the “Meta Trader 4” platform its possible to open their forex demo accounts through the MT4 terminal itself. Although everything is almost identical to a live account of the same broker, its important to know that any forex trading strategy that works wonders in forex demo accounts might not perform exactly as expected on live forex accounts or even worse.
Advantages of Demo Trading
The first and foremost benefit for to-be-traders is the actual experience of trading. Unlike other industries experience is essential to trade forex. Although having a basic theoretical knowledge on forex trading is of utmost importance, its almost equivalent to reading a book titled “learn how to swim”. The only way to learn swimming is by getting into the water, similarly the best method to learn forex trading is by applying theoretical trading knowledge on a trading account. But, first up a demo account is the best place to have a feel for the market and trading.
Demo Trading – facts
A forex demo account is meant only for demo trading forex, full stop. Nothing more, nothing less. This means that any trading strategy successfully tested on a demo trading account does not guarantee similar results on live accounts. Furthermore an orthodox method to trade forex might very well work on demo trading accounts but drastically fail on live accounts.
Demo Trading – warning!
Mindset, attitude, psychology, discipline and personality of a forex trader can make or break his career as a trader. None of these aspects of a trader can be tested on demo trading accounts but only on live forex accounts. So trading well on a demo trading account does not qualify one as a potentially successful forex trader. Instead it means that he is ready to learn:
- how to have the correct mindset
- the right attitude
- the psychology behind trading decisions
- how to become a disciplined trader
- recognize his personality
In a single sentence, forex demo accounts are identical to live forex accounts, except that the funds are virtual and the trading results are vastly different on forex demo accounts.