The Truth about Demo Accounts in Forex Trading

by Andrew McGuinness     Dec 21, 2017

If you're new to investing and trading, one of the first things at the top of your mind is probably the risk vs. reward; as a new trader, you know that it's smart to avoid throwing all of your money into the first impulsive buy that appeals to you, but you also know that without taking a financial risk, you are inherently limited in the amount of money you can make. What if I told you that there was a way that you could practice your trading strategies for free, and see which types of plans work and don't without wasting a dime of your own money? Now, the impossible has become a reality- as the Forex market continues to expand, companies are now making their state-of-the-art trading software and simulations available for public practice and consumption.

Demo Accounts, which allow aspiring foreign currency exchange traders to practice trading and transferring money from one currency to another without risking their cash in real time. Think of Demo Accounts as a game; while you won't get rich or make any money from these trades, the experience that you will gain is invaluable.

We've all heard the phrase "practice makes perfect." When it comes to things like sports and mathematics, practicing is fairly straightforward- just shoot as many hoops as you can in your free time and be sure to complete all of your homework and, over time, you will see your efforts improve your performance. When it comes to the Forex market, things can be a little trickier because using your own money can quickly become an expensive way to figure out which types of trades work for you- and these costly mistakes can add up and put you out of the game if you aren't carefully tracking how much you are spending between your buys and sells. On the other hand, Forex Demo Accounts allow you access to the same software that professionals use when performing their Forex trades, but you have the option to not load any money into your account and simply track pairs that you are interested in, spending virtual dollars instead of your own. Once you start placing demo trades, you will quickly begin to understand how to track currency pairs. As such, these Forex Demo Accounts allow you to view the results of your efforts in real-time, allowing you to determine whether or not your trading strategy is making or losing money.

Just like in real life, you should note that success in your Forex Demo Account does not guarantee a smooth and perfect transition into success on the actual Forex market, but rarely does someone who succeeds on paper not succeed during the real deal. Just like you are much more likely to pass a mathematics exam if you've completed all of your homework problems correctly and read the relevant chapters, you will be much less likely to lose money on the Forex market if you do your due diligence and practice before heading onto the world stage for real.

The most important thing to remember when you first begin trading? Everyone makes mistakes! Don't allow a few minor missteps in the beginning of your learning process destroy your confidence- use your demo account to practice trading until you get the hang of choosing profitable pairs, and watch your money grow when you make the transition into trading with real money.

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