With the increasing accessibility of Forex trading comes an immense number of beginners. Anyone can trade Forex from the comfort of their bedroom if they like. It can be a mere hobby, or it can become your dayjob.
Of course, this has led to many people losing big amounts of money. Brokers are part of the problem. Some of the most popular ones pretend that traders will make money in no time with absolutely no training. It becomes more like gambling than making responsible, well thought out decisions.
To succeed at Forex trading, you need to get a bit of a background first. There are many online courses on how to trade Forex, but the best way to learn is through practice. Brokers now provide demo Forex accounts that allow you to trade with no financial consequences. They give you virtual money, and it’s yours to lose.
But just as you shouldn't go into real trading blind, you shouldn't go into demo trading blind either. Here are 3 things you need to know about trading with demo Forex accounts.
1. They can be too much of a good thing
Forex demo accounts can unfortunately steer you in the wrong direction. One of the major reasons this happens is that they provide you with too many opportunities that you won’t have in real life. For example, you can start trading with $50,000 of virtual money on a demo account. That seems great, as it will give you a lot of leeway to make both good and bad decisions and learn from them. However, trading with that amount of money is essentially different from trading with smaller sums. You'll make very different decisions on how to use that money, with losses being absorbed by massive profits, and the psychology of it differs. If you want a realistic experience, trade with a realistic amount.
2. They have their critics
While many agree that demo Forex accounts are a good idea, there are critics who advise staying away from them. Their biggest concern is trade psychology. They worry that a demo account will get you used to trading without fear, and you'll bring that attitude into live trading. However, if you treat your demo account as if it’s real, this should not be a major problem. After all, if Monopoly taught us anything, it’s that fake money can be the source of some very big emotions!
3. They're not just for beginners
Demo Forex accounts are brilliant for beginners, but their use does not stop there. Many expert traders use demo accounts to test new strategies. Demo accounts allow them to put ideas to the test before risking real money on them. So, while demo accounts might be most closely associated with amateurs, they are useful for experts as well.
If you're a beginner who wants to test the waters, or an expert looking to experiment with new strategies, demo Forex accounts are a perfect tool. However, go in with a good idea of how they work and what could go wrong, and have no illusions that they're exactly the same as the real thing.