Demo Account – Beneficial or Not?

In the last decade, FX trading volume has more than doubled. Despite the fact that the majority of the $5 trillion in daily trading occurs over-the-counter between banks, private customers, and on exchanges, the world is moving towards modernity. Although demo accounts are not part of the trading volume, can it be beneficial or simply a way for brokers to lure in traders?

Consumers are increasingly using digital platforms to compare multiple dealing desk rates. These quotes are almost always offered on digital platforms to increase the accuracy and per point pricing to a fraction of a cent.

A lot of the regulators have tightened their regulatory requirements, which encourages the development of Forex trading in a controlled and fair environment. The European Commission demands that brokers demonstrate that they are trading at the best prices and leave clear audit trails. CFDs and forward contracts have become more popular, boosting liquidity.

The forex market is experiencing increased competition with new brokers emerging almost daily. It can be intimidating for new traders to begin trading in a live environment. That's why most forex brokers recommend opening a demo account as the first trading account type for traders.

One of the benefits is risk-free learning, allowing you to practice Forex trading without any direct risk. This offers you, as a beginner, the opportunity to design and implement a trading strategy that works for you.

What is a Forex Demo Account?

A demo account allows traders to experience the live market without investing their own money. Forex demo accounts are offered by most brokers, usually on all their available platforms. There are several brokerage firms that develop their own proprietary trading platforms.

Others use white-labelled platforms with customized features, while others purchase licenses to robust trading platforms, such as MT4 and MT5.

Demo accounts allow traders to practice trading in a simulated environment, with real-time prices, without investing their own capital. These demo accounts offer several other benefits that are discussed below.

Get to Know The Platform on a Demo Account

Even for experienced traders, moving directly into a live trading environment, will not allow you to explore the platform and its several functionalities. Getting familiar and comfortable with the platform is the first step.

For example, if you choose to start trading at MT4, you can learn about order types, technical indicators, and methods of implementing them efficiently. You can learn to place stop-losses, take profits, as well as where to place them according to your strategy.

Demo accounts at any brokerage also allow you to get acquainted with the interface, see live news feeds, read currency quotes, and add different indicators to the chart. Also, the traders can assess whether they are comfortable with the platform or want to try another before deciding to trade live.

Further, they can ask the broker to provide them with educational resources and tools so that they can better understand the platform.

Refine Old Strategies and Refine New Ones

Unlike popular belief, demo accounts are not exclusively for beginners. This is a myth spread by traders who have too much pride to admit that demo trading is for everyone. Experts mostly use demo accounts to fine-tune existing strategies and try out new ones.

This is normally a fallback for most after their initial strategy fails. In this way, they can identify the downfall in their trading strategy.

New traders can learn how the contract size can affect profit and margin requirements. You also get to experience real-time quotes and spreads, normally very similar to a live account. A demo account can be one of the most helpful tools in your trading arsenal.

Implementing trading robots or algorithmic trading can be tricky at first, thus the best route is to demo them. Also, traders can master the art of creating their own indicators. It is possible to test different strategies and determine which ones work best by being allowed the freedom to trade without risking your own funds.

Find Out About Technical Indicators

Technical indicators can help traders determine the probability in a market that can be extremely volatile. Using this information, traders can decide when to enter or exit a trade. Also, it is the best way to learn about price movements and how they react to, for example, support and resistance levels.

A trend trader should also understand the difference between different chart types. Each can help identity trend continuations, reversals, and range bound markets.

Understanding and Controlling Emotions

When you risk your hard-earned money on a trade, you have a lot of emotions floating about. With a demo account, you can learn to handle losses and gains without feeling euphoric or dejected. Controlling and keeping emotions at bay can be crucial to your success.

In order to learn how these emotions can impact your trading decisions, it is important to experience them on a demo account first. Although difficult to do so, it does help if you manage your demo account as if it was real money. One can discover their emotions linked to trading results, mostly losses, and plan to deal with them on the live market.

Using the demo account that different brokers provide, traders can learn about their strengths and weaknesses. They can develop their trading styles and routines. However, traders should be aware of the limitations that arise from trading on a demo account.

Demo Accounts are Not Perfect Either

As a result of trading virtual money, traders are unable to effectively manage their risk as they would on a live account. Only when dealing with your own money can one truly learn and improve. Most brokers provide excessive amounts of virtual currency, making it difficult for many new traders to trade on the live markets.

Demo accounts suppress money management strategies in most traders. Due to the sometimes unlimited top-up of demo funds, most traders never end up going live.

To Demo or Not to Demo?

“Through practice, gently and gradually we can collect ourselves and learn how to be more fully with what we do”.  – Jack Kornfield

In spite of the minimal drawbacks, demo accounts are an essential step before entering live markets. Traders new to the platform as well as experienced ones can use demo accounts for familiarization. It is the perfect way to work on emotions while learning new strategies and tactics. Before entering a market that is highly liquid, traders must make use of demo accounts on offer.