Forex demo accounts – what you need to know
In forex trading, the idea of demo accounts is received with mixed feelings. There are some experienced traders that do not approve of these accounts even for beginners. They claim that these accounts can easily get potential investors tricked into thinking forex trading is easy before they even venture into the real world where they trade with their money. Some forex brokers are known to use demo accounts as a tool for luring new investors into the world of forex trade.
Even with all said and done, the benefits of using a demo account cannot be overlooked. Demo accounts can be a good way for potential investors to venture into forex trading before they decide whether they are cut out for it. When made use of properly, a forex demo account can be beneficial for different reasons as highlighted below.
Trading with paper money
Demo accounts give new investors the chance to learn on the trade without having to invest their money. Losing money during your new days as an investor can be discouraging and thus demo accounts give you the chance to trade with paper money. With a demo account, you can practice how to use different strategies to find the best ones, you can learn money management and position building.
The disadvantage of a forex demo account is that one can easily lose a sense of reality. Trading with real money and paper money is different. In demo accounts, you do not have much to lose and thus your decisions may not be well thought out. When compared to using live accounts and trading with real money, you tend to make different more thought out choices. This means that what you learned while trading demo accounts may not be useful when it comes to live account trading situations.
A demo account cannot really prepare you for the live account scenarios which include taking risks and sometimes losing.
Understanding trading platforms and brokers
One of the most important things you will get to do when trading forex is choosing a forex broker. The best broker for you is not just the one with the best deals, it should also be the one who has your best interests at heart. A good broker will take you through the process of opening your forex demo account and learning how to trade.
The best way to learn about different forex brokers is by trading on their platform. Demo accounts are usually free and thus offers you the best opportunity to learn about the forex broker as you trade on their platform.
Trading platforms
There are 3 different trading platforms to choose from:
- Universal platforms
- Mobile platforms
- Proprietary platforms
As a beginner, the best platform for you would be the universal platform, more specifically the MT4 platform. This is the simplest platform to use and everything you need to learn can be offered on this platform. Most brokers offer this platform to beginners and thus changing the broker doesn’t mean you’ll need to learn how to use another platform.
The MT4 platform used industry standards that are followed by the proprietary platforms. An MT4 account presents a good opportunity for you to shorten the time you need to spend learning on a forex demo account. It also ensures you learn everything you need to know to start off in live trading.
Mobile platforms are additions are important additions to trading tools. On the other hand, proprietary platforms sometimes live up to expectations and offer traders additional functions which may not be available on MT4 platforms. Even so, unless a trader is sure that they can use other providers, MT4 forex demo accounts are the best choices for beginners.
Gaining experience about currency crosses and the market
Forex demo accounts offer new traders the opportunity to understand the forex markets which helps them to understand how the market works. Beginners will learn about pair schedules, cross news releases, central bank decisions and GDP releases.