If you’re going to participate in currency trading, then make sure that you do so with a live account and not a demo account. In my opinion, Forex demo accounts do nothing but waste your time. If you’re new to currency trading or if you’re a hardcore expert and you want to practice strategies and techniques, do so with real money on the line. Use the money you’ve worked hard to obtain. I’m sure you’re wondering why. Why risk real money when you can practice risk free. Allow me to explain the concept.
Demo accounts serve as a tool where traders can practice trading strategies and techniques using demo funds (not real money). Once a trader feels comfortable and confident using a particular strategy or technique, the idea is to attempt to replicate one’s success with real money using a live account. Here’s the problem.
There is a high probability that a trader would trade differently, even if it’s at a subconscious level, if the trader knew real money was at stake. If there is a good chance that you’re going to trade differently with a live account, even if it’s unintentional, then what’s the purpose practicing with a demo account?
This is how I see it. A live account with real money grants you real experience on how to manage and deal with real risks. A demo account grants you experience on how to manage and deal with no risk. What kind of experience is that? Since real Forex trading has risks, then a demo account offers you nothing but a fantasy world that doesn’t exist. Spending valuable time trading Forex using a demo account, is spending valuable time on obtaining useless or a diluted experience. Sorry, but it’s true.
You need to practice and learn how to trade when actual cash is at risk. That’s the experience you ought to be building. You need to get comfortable trading real funds, real money, while practicing your strategies and techniques. If you lose your money, then you are hit with real emotion and a real sense of loss. If you profit, you are granted the real feeling of success and satisfaction. Oh, not to forget, you are granted real profits as well.
So stay away from demo accounts. Let me take this short time to state that there are exceptions. There are some good reasons why a currency trader may want to use a demo account. I will explain more on what those exceptions are later. First, I want to talk about the importance of education & experience.
Education & Experience
If I had to guess why many currency traders flock to Forex trading demo accounts, it would probably be because they feel, for the most part, that they lack education and or experience to trade the currency markets with real money effectively. I mean, it makes sense. I was once a completely uneducated and inexperienced currency trader and I did the same thing. I went straight to a demo account to learn how to trade Forex. When you have no idea how to trade currencies, common sense tells you to trade Forex using a demo account.
Don’t! As I stated above, demo accounts do nothing for most currency traders. Use some a small portion of your funds and practice in a live account. If you have no education on how to trade currencies, then in my opinion (remember, this is only my opinion), the funds you’re planning to use for Forex trading should be used for eduction. That’s step one. I personally spent thousands of dollars on education before I ever executed my first trade. That’s what I believe new currency traders should do. If you’re experienced in the art of currency trading already, then you may be able to skip the education part since you’re probably educated already. But hey, a little more education won’t hurt either.
When educating yourself, don’t rush through the material or become anxious. Take your time. Absorb the courses and books. Notice I said courses and books. Yes, those words have the letter “s” after them, which means one course or one book won’t suffice. You need multiple Forex courses and or multiple Forex books in your library. If that seems impractical, at least test out what you’ve learned from what you have studied so far…even if it’s one course or book. However, I recommend more than one course or book. Once you feel that you have a solid understanding of how the Currency Market works and how currency trading works, open that live account. You have the real education, now it’s time to get the real experience. No demo experience.
I’m pretty sure you’re going to feel nervous and uneasy trading with real money when you think you aren’t one hundred percent ready. GOOD. Feel nervous. Feel uneasy. Those emotions are real and it comes with the territory of trading; more so in the beginning stages. Because it’s your hard earned money at risk and emotions are flaring, now is the time for you to master them and get control of those emotions. Control them, conquer them. Demo accounts won’t even stress you out enough because you aren’t trading real money. If you’re not trading real money, what’s the point?
Before you even execute your first trade, you are gaining experience on how to manage your emotions. How wonderful is that. Gaining real currency trading experience without even executing a transaction. Managing your emotions may be difficult at first. Try breathing slowly. Practice closing your eyes and sitting still in silence. Practice, focus and believe. Eventually, you’ll calm yourself down and you’ll be ready to trade. But let me tell you, one particular emotion will be greater than the rest. That emotion is fear.
The Fear Emotion
I won’t spend too much time on this segment because I’ve already written an article that covers this topic. It’s called “Forex Trading and Fear“. I suggest you check it out.
Fear is really good at impairing judgment and cleaning out Forex account balances. So it’s up to you to learn how to conquer this annoying emotion. But how? How does a currency trader conquer fear? Ready? Drum roll please. Put less of your money at risk. Ta-Da! When you open you Forex live account and you start to think about how much money to deposit, pick a low amount. Once you’ve picked that low amount, deposit less than that. The less money you risk in the Currency Market, the less fear you’ll have. That’s all you have to do. But wait, there’s more. When trading, make sure you trade smaller contract sizes so that you risk less money per trade.
You see? When you risk less, you’ll experience less fear. It all comes down to how much money you want to deposit and the size of your trading positions. The amount of money you decided to trade with is completely up to you. I recommend an amount that is you can easily afford to lose. In fact, less than that. Trade with the bare minimum. What ever the minimum amount it costs to enter a trade on the Foreign Exchange Market, that should be the amount you practice with. Your fear should be more subdued because less is at risk.
As I mentioned above, there are some exceptions to the rule. I can’t deny that there are acceptable reasons to use demo accounts. Demo accounts aren’t completely worthless. They can be quite beneficial for those who are doing the following…
- Automated trading program testing
- Trading platform testing
- Trading with no funds available
- Treating Forex trading as a game
Allow me to briefly explain these exceptions. First we have those currency traders who want to test out the performance of an automated trading program. Because automated trading programs don’t have emotions and don’t change unless the creator or user makes changes to them, testing them in a demo account should be perfectly fine. Second we have those currency traders who want to familiarize themselves with their trading platform. If you’re using a new trading platform and you aren’t sure how it works, you may want to test it out in a demo account to prevent accidental trades. Hey, it has happened to me.
Next are currency traders that simply don’t have funds to trade with. If that is the case, trading in a demo account would be the only viable option. If a currency trader does have money to trade with, but is considering trading in a demo account, then I would suggest trading in a live account. The final exception I can think of is those who treat Forex trading like a game. I will simply say this. If that’s you, do yourself a favor and close your live account and play your game in a demo account. Don’t forgot to go get your glasses or your contacts and watch how quickly your demo account balance decreases.
There may be more acceptable exceptions to use a demo account, but these are the only exceptions I can think of right now.
The Decision Is Yours
I truly believe that a live account has so much more to offer you as a currency trader. Demo accounts offer nothing for most of us. But ultimately, the choice is yours. If you truly feel that you need to practice in a demo account first, then go right ahead. All I can tell you is that I believe it is a waste of time. And we all know, time is one valuable resource we can’t get back. Good luck.