What Benefits Forex Demo Account Offers To New Traders

However, a live or real trading account may not be the right place for learning as you will be losing real money whenever you make a mistake due to inexperience or lack of knowledge. The stress of live trading can make you more prone to committing mistakes as you may be overwhelmed or intimidated by how fast the forex market moves. The perfect solution to all these problems is making use of a demo account where you will be able to practise risk free.

Almost all brokers offer these demo accounts for free on their platform and you can sign up for one within a few minutes. But before that, you might want to know more about demo trading and what benefits a forex demo account has to offer for new traders. You will get all the information that you are looking for by the end of this article. 

• Opportunity to Learn in Real Time Market Conditions

The first benefit a new trader gets by opening a demo account is an incredible opportunity to learn about the intricacies of forex trading in real-time market conditions. The forex market is a truly unique place as it runs 24/5 without a centralised exchange and the trading platforms are truly global and easily accessible for everyone. There are 4 major trading sessions and traders can conveniently choose a session based on their personal schedule. Thus, the time zone difference won’t be a barrier in the trading process and there is a lot of flexibility.

But getting familiar with the market conditions is essential to come up with a sound trading plan and demo accounts are designed to help you with that. But, the question that arises now is which trading platform to choose for demo trading. Well, there is no other platform as good as MT4 when it comes to demo trading. This platform offers all the tools, features and functionality that a new trader would need to understand the market and its complexities. The trading environment and trading conditions are also very similar to give you a realistic trading experience even though your trades are not being executed in the actual market. The market data you get and price quotes you see on a demo account follow the live market with only slight variations. 

Overall, you will get to learn a lot and practice in a simulative space which is very helpful in developing your skills as a trader. You can also try out different strategies and trading techniques to find the best one for yourself. The trading results you get on a demo account do not guarantee similar results in live trading but it can be used as a tool to evaluate your performance and optimise the strategy before switching to a live account. 

But in order to fully utilise the demo account facility, you should be well-versed with the trading concepts and fundamentals of the forex market. Because having some theoretical knowledge is important to make sound trading decisions. Demo accounts can help you in practical learning but you should educate yourself about technical analysis and more for being able to sharpen your trading skills with demo trading. 

• Lessons about Risk Management

Risk management is something that decides the success rate of a forex trader. The money you use for demo trading is not real but the results you get will give you an idea about how much money you could have made or lost if you were placing the trades on a live account. If you think of demo trading as a game, you won’t be able to learn anything from it. In order to get valuable lessons about risk management, one has to follow a serious approach in demo trading. You should take your time to make trading decisions and prioritise risk management.

But if you think of demo trading as a model test before the final exam, you will get to know about your own strengths and weaknesses beforehand, which gives you enough time to improve before trading on a live account. With demo trading, you will get to know about the relevance of risk management and this is perfect to learn about the placement of stop loss, position sizing, trading with a risk/reward ratio and money management. Preserving your trading capital is the toughest part of trading and those who master risk management will be able to do that with ease. Another way of managing your risk is by investing your funds in a MAM/PAMM account where a fund manager would manage your funds. This is a good way to generate a passive income by the time you are still learning the ins and outs of trading in a demo account.   

If you want to trade in a live account, then I would suggest that you should trade with a very small amount that you can afford to lose. While there are all the benefits of demo trading, there is one small drawback as well, i.e., the difficulty to evoke emotional responses which will be experienced during the live trading process. Those who take excess risk in actual trading are often driven by their emotions instead of logic and emotional control is hard to learn through demo trading. Because your brain will approach things differently when there is no real risk involved. 

However, if you can train your mind to somehow fully engage in the demo trading process and study trading psychology during the practice sessions, you will be able to understand the emotional side of trading and get better control over your feelings. You should also build trading discipline right from the demo trading phase as that will make live trading easier and you will be less prone to deviating from your trading plan as you are used to following the rules. 

• Boost your Confidence 

One thing that stops many traders from reaching their true potential is the lack of confidence. Many traders don’t have faith in their own strategy and they are clueless about whether it will work or not. They even doubt their own knowledge and skill level as they get intimidated by the complexities of trading. But having the right amount of confidence is the key to success in any profession or business and it is true for forex trading too. Building this confidence requires both practical knowledge and experience which can be gathered through demo account trading.

When you spend enough time on a demo account, you will become more comfortable with the constant fluctuations in the forex market and won’t be bothered by the volatility. You just need to clarify all your doubts on a demo account itself as the mistakes you make here are harmless. Trial and error is a great method for getting it right and demo accounts are the only place where you can afford to take the risk without any consequences. Demo account trading helps us to spot what we lack and fix it before live trading.  

Making mistakes is actually empowering if you are able to identify them in time as it removes the uncertainty of not knowing the potential results of these mistakes on a live account. You will be able to move in the right direction once you are clear about the wrong ones. Traders become confident when they see their strategy and techniques work well on a demo account. Lack of confidence will result in excess fear and anxiety which can stop you from performing well while trading on a live account. 

Confidence is crucial for staying calm and composed during the trading process. Those who are restless or impulsive always end up making costly mistakes and this makes their confidence go down further. Thus, all beginners need to boost their confidence with demo trading and wait until they get comfortable with the trading environment. Because confidence is needed to keep moving forward despite the failures and setbacks while continuing to strive for improvement and progress.

Should You Start Trading With A Demo?

Considering all the benefits you get with demo trading at zero cost, we won’t have to argue about the importance of starting to trade on a demo account first before anything else. Many people think that they are wasting their time on a demo account as the profits and losses are not real. However, the experience is going to be very useful in your trading career as you will be well-versed in the market conditions and technicalities of the trading process.   

Mostly the demo accounts expire after 1 month of usage but you can renew it or open a new one if you need more time to practise. In fact, it would be good to keep practising for a few months as you will get to see how the markets change over time and being adaptable is the key to becoming profitable in the long run. 

Final Summary

Finally, I want to remind you about the fact that demo account trading is not for beginners as even experienced traders may find them useful for testing a new strategy or technique before risking real money. Traders are advised to try the demo account first while choosing a forex broker too. Hence, whether you are a newbie trader or a seasoned pro, demo accounts are there to test the waters before diving in for real.