Once you have done your learning and you are ready to get started with trading, it is very important that you get into doing some practise before going live. Most Forex brokers offer demo trading account for you to trade with dummy money. These demo accounts are very close to the live trading account when it comes to market prices and market conditions. So it is highly recommended that you do lots of hands on practice in the demo environment until you gain the confidence to trade with real money.
Demo accounts are really good and helpful for new traders who would be very eager to get into live trading. When new forex traders get into trading, there are high chances that first few losses can bring them emotionally down and they end up making more and more mistakes thus losing money. That is the reason they need demo accounts to trade first. In this article we are going to understand how demo accounts differ from the live trading accounts.
First of you all why do you think that there are differences between demo accounts and live accounts. It is pretty simple. The reason is that it is a DEMO. Brokers offer it to you for free. When you want to access live forex market quotes there is always a fee associated with it. So with a free account, brokers can’t offer you live market data and exactly similar market conditions.
Some of the key differences you will find are as mentioned below:
- With demo accounts you will find that orders are executed pretty fast without any problems. But, with live accounts order execution doesn’t happen so fast and your order might not be filled.
- Prices are never re-quoted in a demo account. This is not the case on a live Forex trading account. A re-quote means that the broker is not ok with the price you entered during buy/sell. Forex market moves very fast. By the time you clicked on the buy/sell and order reached your broker, the price might have already moved and broker won’t be willing to agree upon the price you entered and thus the price is re-quoted.
- Brokers execute the stop loss orders appropriately on a demo account, whereas on a live trading account it is often found that there will be variations in the stop loss execution.
- Data feed and price spreads often differ between demo and live accounts.
Apart from these differences, traders tend to feel at ease with demo accounts as they deal with demo money. This often results in traders getting frustrated when they enter into live trading environment and when things don’t work out the way it did on demo account.
The benefit with demo account is that you get to learn to watch the market and to get a feel of the trading environment. This in fact is very important to ease out the stress of a beginner trader. But since it is not really money, traders often tend to take unwanted risk and which is then replicated in the live account and hence resulting in huge failures.
Also, it is recommended that after you do enough practice on the demo account and move on to live trading start with a mini account where you start with minimal deposit to ensure you don’t risk a huge amount and incur losses. Once you are confident about your strategies using the mini account, go ahead and use the standard account and you are right there.
With demo accounts, you are risk free. Aren’t you? When you understand the differences you will still be able to keep your confidence high and trade on the live account with lesser difficulties. One thing you should understand is that you will learn with experience. It is only when you trade with the live account and real money you gain the experience. Demo accounts are a way to help you familiarize with the trading platform and the basic trading factors which with lots of practice would become very handy when you go ahead and trade live. There is no specific time duration to practice on the demo account, it is all up to YOU. Once you feel that you are ready to trade with real money, you move on and start trading.