“With practice comes mastery,” Danny Rand knows this by heart. Although the Immortal Iron Fist will prefer to fight crime than to trade, he will agree that practice eventually gets you to where you want to be. Likewise, in trading currencies, you need to hone your skills by setting a scenario that mimics real-time action. Forex trading with a demo account does this for you. However, not everyone abides by this principle, and plenty would dive right into real accounts only to regret this rash decision afterward. Here you’ll find why a demo account will help you be more successful in trading forex.
1. Platform Familiarization
Possibly the number one benefit of a demo account is it allows you to get familiar with the trading platform. Most brokers offer MetaTrader as the generic application for dealing currencies, but some brokers develop in-house platforms too which warrant you to get accustomed to their technology.
Usually, these exclusive applications enable you to create practice accounts, and that will serve as preparation before you dabble with the real stuff.
A thorough understanding of the trading platform prevents you from placing wrong orders and committing unintentional errors.
2. Strategy Testing
You can’t go to war against the rest of the market players without a strategy — in fact, you need a good one. And that strategy needs to be put to the test, and it has to demonstrate a decent success rate for it to be a viable tactic for trading. Once a method is determined, it can be applied in real-time thanks to a demo account.
For example, you want to know the success rate of the moving average crossover strategy on the EUR/USD; a demo account will provide you the raw data.
For the next ten days or so, you can test that strategy on the “fiber” or several other currency pairs as well, and you can record its success rate simultaneously.
If you believe the rate of predicting the next price movement with that strategy is satisfactory enough, then you can incorporate money management techniques to walk out with a profit or with fewer losses.
Not only can practice accounts be useful for simulating real-time trading, but it can also be used for backtesting a strategy through the old price data from your terminal or broker’s server.
In the MetaTrader 4 desktop platform, unclick the “scroll the chart to the end on tick incoming” button to prevent your chart from automatically returning to the most recent price. Then, place your cursor in the middle of the chart, click and hold then drag right.
There you’ll see the past prices which you can use for backtesting your strategy. You have the option to backtest with offline charts or you can download the historical data as a CSV file.
Tips for trading with a Demo Account
1. Treat it like your money depends on it
The capabilities of a demo account should not be taken for granted, nor should it be misused. Traders often think of demo accounts as no different from mobiles game applications, which can set the scene for a slap-happy live account trading session.
Since demo accounts operate in a real-time environment, it’s best to treat the funds in the practice account as actual cold, hard cash.
2. Invest Your Emotions
Getting your emotions involved doesn’t mean that your emotions should disrupt the way you trade. Instead, what this means is that you should model the emotions you may have when you’re trading with actual cash.
That’s why it’s sometimes ideal for you to open a demo account with practice money that is equivalent to your intended initial deposit.
3. Maintain profitability for at least 6 months
Before you consider trading with a live account, try to make consistent profits for a minimum of six months on demo — other successful traders even recommend trading on demo for a year.
By taking this much time to practice, you’ll be able to unhinge yourself from emotions that deter you from profitability. It’s also the next best thing to actual experience.
How to Open an Account
Opening an account is pretty straightforward, basic information such as your first and last name, email address, phone number, city, and country will be required by the broker to proceed. Upon signing up for a demo account, you’ll also be asked for how much practice money you want to trade, so, as mentioned, trade with the amount you plan to deposit as well.
Wrapping it up
So, as you can see, there are so many advantages that the demo account can directly contribute to your success, which makes it necessary for you to take time in mastering the platform. Try placing a few trades from the get-go, learn some technical trading setups and money management techniques and simply, treat the practice account like it’s the real thing. Until you get the hang of it while profiting consistently within a certain period, you can’t start trading with real money.