What is a demo account - advantages and disadvantages
What is a demo account? How to open a demo account? What are its advantages and disadvantages? You will find answers to these and other questions in this article.
Good afternoon, gentlemen traders! Practice is the key to success in every aspect of life, and trading is no exception. Trading on real accounts by professional traders looks simple and understandable, although it requires tremendous dexterity, but in the eyes of newbies it seems difficult and risky. So where can you learn to trade Forex without experiencing the consequences of risk? That's right, on demo accounts! Today you will learn what a demo account is, how to create a demo account, what are its advantages and disadvantages, as well as where you can open a demo account.
What is a demo account?
A Forex Demo Account is a simulator that generates real-time trading on virtual platforms. On these platforms, you work with virtual money and risk nothing. Along with novice traders, even professionals from time to time use demo accounts to develop various strategies strategies and test them. Without the risk of losing capital, traders are free to learn and gain trading experience.
Demo Account Features
With the demo platform, you can participate in simulated trading, which was designed specifically for real-time trading training. If you practice on real transactions, you will be exposed to severe risks and constant fear of draining the deposit. Although this fear is natural and explicable, it can have negative consequences for a beginner. Demo accounts provide a safe learning environment without fear of any consequences from your actions. Here are some of the many demo account features:
- Charts. Studying charts is incredibly important when trading currency pairs. Without knowledge of the various trends observed in the market, it will be impossible to find the most profitable trend. Forex demo trading will help you explore the interpretation of charts using indicators, and implement various charting tools;
- Analysis of trading tools. Indicators for technical analysis and other trading tools will be of great help in trading. These tools help to determine the best point to enter a trade, and Forex demo accounts will help you get comfortable with these tools;
- Market research. Indicators will be useful only when you can read the markets. Without knowing the basics of candlestick analysis , it will be difficult for you to learn Forex. However, with a demo account you can quickly master these nuances;
- Testing market trends. Currency pairs behave differently in different market conditions. Some currency pairs show a good profit in the London trading session, others - in the Asian, some instruments may be in the trend , others at the same time move in a side corridor. Practicing on Forex demo accounts will help you easily understand this difference and learn how to use it in trading.
See also which Forex brokers offer deposit bonuses.
Benefits of Demo Accounts
When you start trading, you know little about Forex. Attempts to extract experience from real transactions will not only serve your purposes, but may also cost you a deposit. Demo accounts will allow you to get:
- Risk free experience. There are no risks on a virtual account with simulated money. Thus, mistakes made on a demo account will help you not only learn how to trade, but also avoid them in the future on a real account;
- First-hand learning. Forex trading is not an area that can be covered only by reading books and watching training videos, practical training is of paramount importance. Demo accounts will allow you to get acquainted with the markets and learn to speculate with market patterns that will eventually come your way. Along with this, demo accounts will also allow you to learn how to develop trading strategies and advisors ;
- Testing broker quality. One of the best advantages offered by the demo platform is the ability to test the quality of service of a broker. With the help of a demo account you can check the effectiveness of their software and the trading conditions they provide.
Disadvantages of demo accounts
Although demo accounts are designed to improve trading experience, they have some drawbacks:
- No real-time effects. Forex demo trading provides a virtual environment for trading virtual money. This environment is much the opposite of real-time transactions. Lack of risk prevents traders from coming to terms with the fact that one wrong move can completely destroy their trading;
- Unlimited investment. On demo accounts, you can start every transaction with a million dollars, because it is virtual money. Can you do it in real trading? Most traders will work with a small capital on a real account, and the slightest mistake can lead to its complete loss;
- Lack of emotional preparation. Dealing with risk, losing money, and real-time trading all have enormous emotional consequences. Fear, greed, or excessive self-confidence can lead to a loss of deposit. Learning to cope with these emotions is just as important as learning how to trade, but demo trading will not allow you to do this, as it dulls these emotions.
How to create a demo account?
Creating a demo account is easy. To do this, go through a free demo account registration with your chosen broker. In this case, you can choose the type of trading account (cent or classic, with a floating or fixed spread, ECN account), the size of leverage and deposit balance. You can open an unlimited number of demo accounts under various trading conditions. Some brokers offer to create a demo account without registration. This usually applies to web terminals. In addition, many brokers (for example, Alpari) hold demo account contests with real cash prizes, so you have the opportunity to earn money without any risk.
See also what non-deposit bonus brokers exist.
Thus, a Forex demo account is a great opportunity to gain invaluable trading experience without the risk of losing a deposit. You can also use demo accounts to develop new strategies and advisors. However, demo accounts have their drawbacks. The longer you trade on a demo account, the more difficult it will be to transfer to a real account. It's all about the emotions. While you are trading on a virtual account and do not feel a sense of risk, your emotions are hibernating. But if you switch to a real account, how your emotions take over your experience and you can quickly lose your money. The most optimal period for testing a strategy on a demo account is 6 months, then you should switch to a real account. The transition process should be slow. Start with small trading volumes, even if the deposit allows you to trade large lots, and strictly observe your money management . In this case, you will not only get the experience of trading, but also learn how to control your emotions.
Read also the article “What timeframe to choose for trading on Forex?” .