Before we get down to the nitty-gritty on demo accounts, let’s take a look at what forex trading is.
What is Forex Trading?
Forex trading is the act of buying and selling currencies through digital platforms to make profits. Forex is often abbreviated as FX, and its market is among the largest in the world with a daily global turnaround estimate of $5 trillion per day. In Forex, you trade with a base currency and a quote currency. The difference in the currencies is where you make your profit or loss. Forex trading is risky and rewarding, but the benefit outweighs the risks if you do it the right way.
That’s why it is advisable to start the journey into forex trading with a demo account or enrolling in one-on-one training. But bear in mind that after training, you’ll still test-run with a demo account.
What is a demo account?
In business, it’s advisable to test the waters first. That’s why brokers provide a demo account for traders to practice and test run their services using simulated money. In a demo account, you can trade with many financial instruments, but you’ll not lose or gain anything. These accounts are usually free of charge though some may require a little investment.
Advantages of a Demo account
In a demo account, a prospective trader uses virtual money for simulation. This implies that it is completely risk-free. You won’t lose money, but you won’t earn any either. Also, you don’t have to pay for physical training as well. So a demo account is necessary for experienced traders to improve their forex skills. But, it is more useful for beginners to learn how the FX market works and avoid real trading with the wrong broker.
Forex Trading demo accounts can allow new and existing customers to practice using real currencies. A simulated demo environment,
Gives you the ability to practice in a live environment
Helps you to familiarize yourself with the technical aspect of the electronic platform, access to trading signals, market charts, Forex news and lots more
Offers you the ability to test Forex trading strategies without financial losses
Check out the platform’s features and services
A demo account can also enable existing Forex traders to try a different broker’s trading platform before switching. It will enable them to know if a broker’s client-based trading platform or broker’s propriety web platform is suitable or not.
Money management skills
A demo account can enable you to learn how to acquire money management skills effectively. You would be able to practice these skills on live exchange rate dynamics and movements. Without the implementation of risk management principles, you will fail in Forex trading.
Emotional and Psychological Aspects
A demo account offers you the opportunity to practice handling your emotions, such as greed, fear, and hope, which is one of the most challenging aspects of Forex trading. How do you respond to winning and losing? Without a proper mental and emotional state, you may end up making decisions that would cost you money.
Limitations of Demo accounts
Although Demo accounts offer both new and old traders significant benefits, they also have a few drawbacks. These drawbacks include
Predefined funds and Duration with a demo account
In demo accounts, a user can trade with a predefined amount of virtual currency. This amount can be far more or far less of what the user has in reality. When you trade with bigger capital, your losses can be minimized more easily. But when you trade with smaller capital, your risks are much greater when you make the same sized trades. In a demo account, you cannot withdraw or deposit into your account; you are limited to the funding your account was initially set up with.
Another point to note is that the demo account gives you access to expensive tools that you might not be able to afford in a live account. Also, the demo account has an expiration date. This implies that you can lose your trading records at a time not suitable for you. Although demo trading is very realistic, it doesn’t give you a complete real-live trading scenario.
The difference in Execution times
With demo accounts, transactions are not computed into the live market. It means that the actual execution rate does not matter the way it would be in a live transaction. Forex demo accounts provide a faster execution time than live trading. But, the execution of live forex trade is dependent on market conditions, fluctuations, and other factors such as request.
Most demo accounts are set up with a tighter spread as a way of impressing potential Forex traders. This can be negative for users. Brokers do this because no real money is involved, so they can quote false tight spreads. Spread in reality may be far wider than in a simulated demo environment. Also, price slippage that happens in real trading is not represented in a demo account.
Premium Demo account and trading tools
Some brokers may require you to pay for a demo account. You might end up not satisfied with the platform or their support services, which would mean wasted money and time. Opt for a broker that offers a free demo account and try as many demo accounts as possible until you find the right one. Another factor to consider is trading tools. With a demo account, you would have access to sophisticated trading tools you may not afford in a live account.
Dealing with emotion
In a demo account, you’re trading with virtual currencies, which imply that a loss does not affect you emotionally. But how you deal with profit and loss would significantly impact your decision making in Forex trading. Moreover, most times, key lessons are learned when you make a profit or a loss in a real-life scenario.
Opening a demo account
A demo account has most of the functionalities and capabilities of a real account but with pretend funds. It can help you to learn the dynamics of Forex trading with zero risk. Creating the account is the first step in becoming a successful forex trader, and the process is straightforward.
All it requires is your username, password, email and your location. A beginner should try at least three demo accounts with different brokers to make the right choice. The best strategy is to use a demo account until you acquire the necessary skills before moving to a live account. There are a lot of forex brokers that offer a free demo account on the internet.
Migrating from Demo to live account
You can migrate to a real account after learning the ropes with a demo account. A real money account can be opened on the web, desktop application or mobile. There are three steps in opening a live account. However, before you proceed, decide on how much you want to invest.
Decide on a broker – After evaluating demo account from different brokers, you can narrow down your choice to the broker that offers you the best services.
Choose account type – There are two types of account available for you. You can choose personal or business account. Accounts are further broken down to standard, mini and micro-accounts.
Type in your details – Forex brokers require you to fill in your details on a web form or PDF document. Make sure you calculate all the transfer charges before you commit yourself.
Activate your account – After your application and the broker confirms it, you will receive an email prompting you to activate your account.
Reviews of the best Free Demo platforms
Forex trading is a huge online business with a massive daily global turnover. However, Forex can be fluctuating and very volatile. So, it makes sense to choose your broker carefully. But there are some factors you should and make the right decision.
MetaTrader 4 Demo Account
One of the most popular Forex trading platforms today is Metatrader. It offers excellent accessibility which can be useful in Forex trading. The platform is fast, comes with tools for market analysis and efficient account management. The MetaTrader demo account comes with an excellent user interface with a degree of customization. It can help you hone your Forex trading skills without risking your money.
When you sign up and generate a password, you can practice price action, chart figures, resistance lines and currency correlations. You can also carry out live quotes from all markets, as well as building up a virtual portfolio. One outstanding feature of MetaTrader demo account is that it does not expire. MetaTrader is dynamic and can allow you to access the platform on desktop or mobile devices for more flexibility. It also offers you diversity, and you can open accounts in gold trading, FX and lots more. Moreover, it allows you to try as many markets as you want until you can decide on one that suits you. MetaTrader Demo accounts are unlimited and available in most countries.
IC market offers one of the best free Forex demo accounts you can think of today. It is accessible and available in many regions. It is owned by an Australian broker and offers some of the best Forex demo tools. You can easily open an account and start your demo process. The platform is very easy to use and comes with a wide range of sophisticated tools. They also have good support unit and an active community.
IC market offers dynamism and flexibility, which can allow you to run your account on a web platform, desktop platform or mobile (Andriod and iOS). The account does not expire, which implies you can use it for as long as you want. When you are confident with Forex trading, you can opt to migrate to a live version.
IC market offers great scalability and dynamism for new and existing traders with a wide range of sophisticated features.
Plus500 is a world top Forex broker and is listed on the London stock exchange. The platform is safely-regulated by tier regulators such as the FCA from the UK. The platform offers great user experience because it uses CFDs and offers high-quality software and flexibility.
One commendable feature of Plus500 trading platform is that the demo account does not expire. This implies that you can use the system for as long as you want without any financial implications. The demo app is available on both iOS and Android store. You can easily switch from demo mode to real money mode by clicking the switch to demo mode on the platform. You can also reset the account if you want
Etoro is an Israeli organization that deals in social trading. The organization was established in 2007 to serve UK clients. The platform is safe and is regulated by top tier regulators. The account opening process is seamless, very fast and comes with very innovative features. Etoro offers Forex trading demo accounts, CFD and crypto services. You get two accounts in one when you register with Etoro. The system creates both a life and a demo account for you. You can use your demo account for learning until you are knowledgeable enough to go live. Demo account with Etoro is unlimited, and you can use it for as long as you want. On your home page, there is a Practice Trading Login icon, enter your Etoro credentials and start practising. The Etoro application is available on desktop and mobile app as well.
Forex trading is highly volatile and riskier than other types of investment. This is because the currency market can shift rapidly. Most reputable Forex brokers offer new and existing traders a demo account which can enable them to practice trading before migrating to a live version. A demo account does not only allow you to learn Forex, but it also allows you to get familiar with the platform and support system of the broker.
With a demo account, you do not have to risk your money because you can carry out simulated trading with virtual currencies. A good demo account allows you to test all the important live trading functions including creating stop losses and setting up of alerts.