Newcomers in the Forex market are often advised to open demo accounts first to practice their skills and get used to a real-time market environment. Depending on which broker or trading platform one uses, a demo account is basically a virtual training program. Users are provided with virtual money which they then get to trade in a virtual, risk free environment.
Trading using a demo account can help traders get acclimatized to the trading format. This allows them to develop and practice basic trading strategies. However, there are many brokers who are trying to promote their services through demo accounts, often enticing customers to open real accounts eventually.
There are several advantages and disadvantages of using demo accounts.
- By opening a demo account, traders can easily access forex market functions and get a taste of the world market. All one needs are an address, a valid phone number and a name to get started. Most reliable brokers do not require any upfront fees for users to start using their demo accounts.
- Most demo scenarios are based on the real-time trading market. Novice traders especially can use this opportunity to adjust the many settings and get familiar with the fluctuating price moves of currencies. Most demo account come with virtual money for the user to spend. Hence there is no fear of losing any hard earned money, while experimenting with the forex market.
- New traders can also take their time and develop different trading strategies by using demo accounts. This can help them make an impact in the ever changing forex market, helping them be confident and organized when they start trading with real funds.
- The Forex market can change in a blink of an eye and traders have to be ready for grabbing the best trading opportunities. New traders can build up their alertness by using a demo account. This helps them tackle the changing currency prices in a better way, learning about the pitfalls and rectifying themselves along the way.
- Demo accounts usually provide virtual money. This has no tangible value in the real world. Since the user does not have the same urgency and the risk involved compared to real money, it can lead to recklessness while trading. Hence novice traders don’t really get a feel of the volatility of the forex market. In the real environment, they can lose their money quicker than expected.
- The Demo account is nothing more than a trial software that emulates the market, no matter what the broker or trading platform advertises. The broker can provide any whether between $50,000, and $100,000, which is an amount no novice broker would ever start their trading account with.
- Risk management is one of the crucial elements for building any trading strategies. Experienced traders do not usually put a huge amount at risk when dealing with volatile market environment. However, the unrealistic amounts of virtual currency provided by demo accounts do not provide a suitable training tool for dealing with a volatile trading forex market.
- Gaining success in a demo account is not an indicator of how one will perform eventually in a real live trading environment. They should always remember that almost 80% of the trades in the forex market can end in losses, due to the instability of currency prices.
Demo accounts can be helpful for novice traders for building their experience. For example, https://www.iqoptionmag.com, a website about the well-known online brokerage site IQ Option, offers their users a demo account with almost all the functionality present in their trading platform. However, one should always be aware about the pitfalls associated with trading in a real market. This is something that traders cannot master if they simply rely on a demo account for practice.