Effectiveness of Using a Forex Demo Account With Your Trading

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This article will provide you with all of the benefits of using a demo account in Forex trading. You’ll learn about what a Forex demo trading account is, why you should consider downloading a trial demo account, how to download a demo trading account, how to set up a demo account, the best way to use a demo trading account, and more!

Why New Traders Should Trial a Forex Demo Account, and How to Get Started

Did you know that global trading volumes in the foreign exchange market reached a record high in 2020? Thanks to volatility in global economics, more and more people are actively trading in the Forex market. However, trading a market which turns over more than $5 trillion every single day can be quite daunting at first. This is why your first Forex account should be a Forex demo account when you are starting out.

Within minutes, the account can effectively become your Forex practice account and can work as a free trading simulator. This could prove to be invaluable when you are first learning how to Forex trade. You can easily open up a free Forex trading demo account and be trading in a matter of minutes, and trading the global currency market risk free. Read on for more information about what exactly a Forex demo account is, the benefits of using one, and the best way for you to start using it today.

What is a Forex Demo Account?

As you may have gathered, a Forex demo account enables a trader to simulate a live trading environment – without putting any real money at risk. It enables a trader to start free online trading relatively quickly, so that they can practice trading before risking real money.

All Forex traders should use a Forex demo as their first Forex account to get a feel of what trading the currency market is like, as well as to get used to the broker and the trading platform they are using. Essentially, it enables traders to practice their trading skills along with quite a few more enticing benefits.

Trading With A Demo Account

Trader’s also have the ability to trade risk-free with a demo trading account. This means that traders can avoid putting their capital at risk, and they can choose when they wish to move to the live markets. For instance, Admiral Markets’ demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders.

To open your FREE demo trading account, click the banner below!

What are the Benefits of a Forex Demo Account?

If you speak to any seasoned trader, their list of demo trading account benefits would be endless for traders who are first starting out. Here is a list of just a few of the benefits you may want to know about:

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Learn how to Forex trade risk free with a demo trading account

Owning a Forex practice account is like having free Forex training. That’s because it enables the trader to put their training into practice, without risking any real money, by trading with virtual funds instead. After all, the most successful people in any field are those who have learnt and practiced their craft considerably – and the same goes for Forex traders.

You can complement your demo trading experience with some of the best free Forex training available, with courses such as the Forex 101 – Admiral Markets’ Forex and CFD Trading Course. Forex 101 provides you with free access to a video training series from two industry leading experts, accompanied with written notes and quizzes. You will also receive a certificate acknowledging your newfound expertise!

Familiarise yourself with your trading platform

Most Forex brokers offer the well known MetaTrader platform. By opening a Forex demo account, you can familiarise yourself with the trading platform by making trades without putting real money at risk. This way you get to learn about how to take a trade, how to close a trade, and how to use different tools to your advantage, like different order types and trading indicators.

Admiral Markets offers the following trading platforms:

  • MetaTrader 4
  • MetaTrader 5
  • MetaTrader WebTrader
  • MetaTrader Supreme Edition (A custom plugin for MetaTrader 4 and MetaTrader 5, created by Admiral Markets and professional trading experts)

When advancing to live trading with real money, it is essential you feel comfortable opening, amending, and closing trades when you need to. The last thing you want is to experience panic from not knowing how to get out of a trade. Instead, you may want to know how to use stop loss and take profit orders, so that the broker and trading platform can manage your trades when you’re not there. A Forex practice account could be the solution to your long-term success.

Learn to manage your emotions

When it comes to risking money to make money, a lot of emotions can come into play. Euphoria and overconfidence can kick in after a few winning trades. Frustration and doubt can kick in after a few losing trades. These emotions can often cloud the trader’s judgement on their next trading opportunity.

Trading on a Forex simulator helps you to identify these emotions so you can build a routine and plan around dealing with them. Most beginner traders don’t know what kind of emotions they will face when winning and losing, so it’s probably best to find out without risking any real money.

Create, develop and test your trading strategies

If you’re learning with Admiral Markets, after graduating from the free Forex 101 course you can use a Forex demo account to practice the tools and trading strategies you have learnt. However, you may also benefit by learning more about trading through the Admiral Markets Education page, or by using some of the free indicators available on the MetaTrader trading platform.

The Forex trading simulator is by far the best place to test anything new you have learned about concerning indicators or strategies. You may also start to recognise your own trading patterns after some time has passed, and you may even start to develop your very own trading system. Having the ability to trade risk free often enables traders to be more creative in terms of testing and finding out what works best for them.

Find the best trading routine that suits you

The Forex market traders trade 24 hours a day, 5 days a week. So when is the best time to trade? Most traders prefer to trade around the opening of the Tokyo, London, and New York trading sessions which are: 12am, 8am, and 2.30pm GMT respectively. However, the best time to trade is when you have the ability to completely focus on the markets.

One of the great things about the Forex market is that you can develop a routine to trade the market that fits around your work and family life. However, when you first start out, it may be a challenge finding the exact routine that works for you. The last thing you want is for this to lead to poor trading decisions, which lead to losses with real money. Using a Forex trading demo account can help you to find the best routine that suits you, before you start risking real money. Remember: Trading is a marathon, not a sprint!

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The Best Way to Use a Forex Demo Account

While the benefits of using a Forex demo account speak for themselves, there are some negatives you need to be aware of. Only after understanding these can you start to use your Forex demo account the best way.

Create a trading plan for a real money account and trade it on a demo account

The first step should be to create a trading plan that you would use on a real money account. While you may be experimenting on a demo account to find what works best for you, every trader needs a foundation to build upon.

Your plan may consist of the following:

  • When will you trade? Try to stick to the same time every day, as you’ll get to learn more about how that specific session moves.
  • Which markets will you trade? Focusing on a few markets first may be the best way to implement your learnings through your Forex training. Some of the most popular FX currency pairs include the EURUSD pair and the USDJPY pair.
  • Which strategies will you trade? After graduating from your Forex 101 course, decide which tools you will use to make trading decisions, and develop a strategy around them. This way you know what conditions you need to take into account when placing a trade and closing a trade.
  • Which risk management tools will you use?Risk management is an essential part of trading successfully in the long term. Decide ahead of time how you will position each trade in terms of size, and how you will decide to close a trade in profit or loss.

The most important element here is to try and replicate how you will, or want to, be trading on a real money account. You can then practice this plan and amend it – until you are comfortable enough to move onto real money.

Create a trading journal to track your practice trading results

It’s great to have access to a free trading simulator, but at what point should you move onto trading with real money? Only you can answer that, but you may want to consider tracking your demo trading results, and set yourself some goals to then take the next step.

Creating a journal of your historical trading activity can be quite useful, as you can see what your results could have been if you were trading with real money. Due to market volatility, they will never be exactly the same, but you can get an idea of whether or not your trading plan is working for you.

Of course, it only works if you’re honest about your trading results. If you are, it can pay off in a big way. Some of the most successful traders in the world have mindset coaches, so it could also pay off to write a journal about your emotional progress in terms of how you feel after a winning or losing trade. It’s a great way to prove to yourself that you have the mental fortitude to start risking your own money in live trading conditions.

Create a goal to transition to a live trading account

The day will come when you want to transition into a live trading account and try to reap the rewards of your hard work in live market conditions. However, when that day comes, it is down to you. So, the key question you have to ask yourself is what needs to happen first before you make that transition?

Some traders like to set goals. For example, it could be reaching 10% on your demo account money balance, or it could be simply reaching 20 trades, or it could be achieving three months of profitable trading first. One of the benefits of starting with a demo is that it can provide a seamless transition into a live account as your platform. The charts you use and your trading plan can all remain the same – and probably should!

How Do You Set Up a Demo Trading Account?

If you are eager to start trading in a risk free environment right away then it only takes a few clicks to open a demo trading account. After inputting your name and email you can begin to enjoy benefits such as:

  • The ability to trade on any device (Windows, Mac, Android, iOS, etc)
  • A fully immersed live market experience
  • Free market data and real time news
  • An expert quick-start guide
  • 30 days access, or for a lifetime when opening a live trading account

With risk-free access, isn’t it time you joined the world’s growing trading community too?

Forex 101 – Free Online Trading Course

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About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world’s most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Are Demo Accounts An Indicator of Investing Skills?

Demo accounts are advertised all over the internet, and people who surf financial sites are often exposed to many ads inducing them to open a demo account. Demo account trading is the new form of paper trading. The old-fashioned paper trade involved writing down entries and exits to see how a methodology played out in the market.

Demo accounts allow the trader to do this on a computerized simulator. The simulated trading environment does provide a trader with the opportunity to get used to the software they will be using with their broker to trade the markets, but when a person moves to live trading after the demo account, there are several shocks they need to prepare for.

Why the Shock?

Many traders trade profitably in a demo account, but when they move to live trading with their own money, a succession of losses may occur one after the other. Why does this happen?

  1. Demo accounts provide better execution than live trading.Demo accounts will normally fill a market order at the price showing on the screen. When an order is placed in the live market, it is subject to slippage, and therefore it is quite common for market orders to not be filled at the price expected, or in the case of large orders, for at least a portion of the position to be acquired at a different price than is expected.
    Demo accounts will also generally give early fills when bidding or offering. Bids and offers in the live market are also subject to a queue. Bidding at the current bid price does not guarantee a fill, as only a few shares or contracts may be filled at that price. In a demo account, it is hard to know which orders would actually have been executed in the live market. This is true of entries and exits, and thus results attained from a demo account are highly subjective at best, and completely inaccurate at worst.
  2. Demo accounts often provide more capital than what the trader will actually be using for live trading.Demo software generally allows the trader to choose the amount of capital they would like to simulate trading with. The amounts vary, but are often very large and beyond the actual capital the trader has for trading their own account.
    Simulated trading with more capital than will actually be traded provides an unrealistic safety net. More capital allows for small losses to be more easily recouped, while a loss on a smaller account is harder to recoup. It is also important to note that even-share lots (100 shares) in more expensive instruments, which were easy to afford in the high-capital demo account, may be beyond the capacity of the trader in a live account. The instruments and volume traded in the simulator may not be able to be replicated with real capital. A trader may be able to trade several lots of Alphabet Inc. at $1,000 a share, but unless they have similar capital for live trading, they may be unable to trade those higher-priced instruments at all.
  3. A demo account cannot simulate the emotions of fear and hope (or greed) that the trader will experience with real money.This is one of the most jarring differences between simulated and live trading. Fear of losing one’s own capital can wreak havoc on a proven trading system and prevent the trader from implementing it properly. Greed (or hoping a losing position will come back to profitability) can have the same effect, keeping the trader in a trade long after it should have been exited.
    When real money is on the line, money that can have a potential material impact (or is perceived to have a potential impact), it is far different from trading a demo account where success or failure has no material impact on the person’s life.

Can Demo Trading Be More Realistic?

Demo trading does have some benefits, as it gives new traders a general idea of how the market and a company’s software works. So, can you trade a demo account in a certain way to make it more realistic? While a demo account can never offer the same results that would be realized in live trading, there are several things you can do when testing out systems on a demo platform to make the results as realistic as possible.

  1. Make Realistic Assumptions:If a bid or offer is placed, and you can see that the bid or offer was within one tick or one cent of the low or high of that move, assume that your order was not filled. The demo may show this order was filled, but in the actual market, this may not happen. Remove the profits or losses from these trades from the net profit/loss shown on the simulator—as if the trade never existed. Only assume bids or offers are filled if price trades through the bid or offer by at least a cent more. For thinly traded stocks or low-volume stocks this buffer should be expanded.
  2. Account for Slippage:On market orders assume at least a one-cent slippage on high volume stocks, and assume larger slippage in lower volume or more volatile stocks.
  3. Trade With Modest Capital:If possible, trade the same amount of capital in the demo account as will be traded in the live market. If the demo does not allow this, trade only a fraction of the demo account capital. Don’t access any funds from the demo capital which would be in excess of live trading funds.
  4. Get Personal:Pretend the money is real as much as possible. Monitor emotions and how trades are affecting you psychologically while those emotions are felt. Since demo capital provides no real loss or profits, the sense of loss or profit needs to be added in by the trader. One method of doing this is to withhold something you enjoy if you fail to follow your trading plan, or give yourself a small reward when the trading plan is followed (regardless of profit or loss).

The Bottom Line

Demo accounts can provide some benefit to new traders, as they allow the trader to become familiar with trading software and get a sense of how the market works. The problem is that simulated results rarely correlate to actual trading results. Therefore, the trader must be aware that execution, capital, and emotions can be different when trading real money as opposed to fake money. Traders can, however, make demos more realistic by excluding profits/losses on orders that are unlikely to have been filled in the real market, factoring in slippage, keeping the demo account capital in line with what will actually be traded and making demo losses and profits (and thus emotions) real by incorporating external stimulus.

The Benefits of Using a Forex Demo Account

These days, many people are interested in dabbling with trading in order to make some money.

One very popular method of trading is via the Forex markets, which is something that has made many people a huge amount of money. However, if you have no experience in Forex trading it is important to do your research and to learn more about whether this is the right trading option for you.

One of the ways in which you can do this is to set up a Forex demo account so you can learn more about this type of trading and also build your confidence and knowledge. Forex trading can be a challenge when you are new to it so you need to get some practice in and develop strategies that you feel will work for you if you want to be a successful trader. You should also look at different trading platforms, which you can do with ease via sites such as Engine Forex.

The key benefits of a demo account

So, what are the key benefits of having a demo Forex trading account? Well, one of the most important benefits is the fact that you can get some practice in without losing your hard-earned money. In a similar way to fun gaming on gambling sites, a demo account lets you effectively trade but you don’t make or lose money. It is simply a very good way of getting a feel for this type of trading so you can determine whether you are comfortable with it, adept at it, and whether you enjoy it before you take the plunge and trade with real cash. This is an ideal way to learn more about this type of trading and discover whether it is the right option for you rather than jumping in feet first and losing money only to find it doesn’t appeal to you.

The other key benefit you stand to gain from using a Forex demo account is that it can help to build your confidence levels. If you have never been involved in Forex trading before, it is only natural that you will feel nervous about what to do and what strategies to use. People all have different strategies that are personal to them and in order to develop your own you need to be confident and know what you are doing. When you have a demo account, you can boost your confidence, get some practice in, and develop a strategy ready for when you start trading for real. This could save you a fortune in wasted money because you can get a feel for this type of trading before you risk your cash.

All in all, a demo account can help you in many ways which is why so many novice traders start out this way. It means that you dramatically reduce the risk of financial losses and you can look forward to feeling far more confident when you start trading for real.

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