You may be a seasoned stock trader or perhaps you’ve been trading options for a while and assume that you don’t need to bother with a forex demo account. But not so fast!
Too many new forex traders think that they don’t need to concern themselves with opening up a demo account. Unfortunately, far too many open up a live account and start trading right away; big mistake.
I guess I don’t need to point out how importance it is to get your “feet wet” via learning about the forex in a demo account. Trading in a demo account is an absolute must when you’re just learning how to trade the forex and any time you’re trying out a new strategy or fine tune one.
Before all the technology we have today, demo trading the markets was done on paper; it was cumbersome, but it served its purpose. “Paper trading” however had some major drawbacks.
First of all, it was done just on paper, make believe trading and simply didn’t feel that real for many traders. Let’s face it, losing ten thousand dollars on paper is just not the same as losing ten thousand dollars of your hard earned cash. Paper trading simply lacked the emotional component that is part of trading real time and real money.
Also, paper trading didn’t happen in real time. Trading decisions were made without the pressures of trading a live market. In addition to that, depending on the broker or platform, not all trading tools may have been available when paper trading.
Today however, all of that has changed. You can and should open a forex demo account and trade in it just like you would trade a live account. You’ll have the same price data, the same platform and all tools will be available to you just like they would if you were trading in a live account.
There just is no excuse not to open and trade first in a demo account anymore. As a matter fact you should have a demo account open at all times and here is why.
1. Get to know your way around the trading platform.
You want to test drive a new trading platform well before you ever place a live trade. You don’t want to get caught trading live and not knowing how to adjust an entry, move a stop or how to close and get out of a trade. It might cost you dearly!
2. Know where to find indicators and technical tools on your platform.
If you base your trading decisions on technical analysis it’s crucial you know how to access your technical tools on the new platform. Inability to utilize trading tools or hesitation in finding them will lead to losses and cost you money.
All of this is twice as important if you trade small times frames and scalp the forex. When scalping there is absolutely no room for errors related to moving a stop, finding indicators or figuring out how to close a trade.
3. Get to know the broker while learning the platform.
You want to be very familiar with how your broker operates before you ever place any live trades. How easy can your broker be reached? Do they answer the phone or do you have to send them an email or chat with them after your connection dropped and you need to close out a trade. Again, this one could cost you money!
4. Test drive new trading strategies.
When you think about trying out a new trading strategy or fine tune an existing one, demo trade it first. Trade it in your demo account at least over 20 to 30 trades before continuing on with it.
Once you have demo traded your new strategy, next trade it in a micro or mini account, which is ideal for testing it out in a live environment. And then, and only then are you ready to take your new strategy live.
The benefits of opening a forex demo account are clear. And today, most brokers offer demo accounts that do not expire but stay active as long as your live account stays with the broker.
So what are you waiting for? Open your forex demo account today!