Is Your Demo Account Undermining Your Forex Training?
All new forex traders are told that once they finish their forex training they have to use a demo account. These demo accounts are there to help you prepare for the market. The question is: are they really helping you? Demo accounts do help traders prepare for the market, but only if they are used correctly. There are also psychological traps that many traders fall into when they use a demo account. It is important that you avoid these traps and use the demo account properly.
Trade as Your Forex Training Tells You
When you use a demo account it is important that you trade as you have been trained. If you do not do this then you are not going to be getting the full benefit of the account. In fact, traders who do this completely undermine all their training by not using it on the demo account. If the trading strategy you learnt states that you should place your stop point somewhere this is where you should place it when trading with your demo account.
Virtual Versus Real Money
When you trade on a demo account you are aware of the fact that you are not using real money. This psychologically removes a number of barriers you have with trading. The fact that you can lose the money without worry can actually negatively impact your trading when you go live. Traders often employ greater risks when they trade on a demo account because of the lack of consequences. This is then carried over to the live trading account where they risk their own money and often lose on the trade.
Demo accounts can give you a good understanding of the fore market, but it can also give you unrealistic expectations. Demo accounts execute trades immediately and this is not something that happens on the live market. When you trade live your broker may take a while to process your trade depending on the reliability and reputability of the broker. However, there are very few times when the trade is executed immediately. This unrealistic expectation can actually cause the trader high levels of distress and mistrust in the broker.
Should You be Trading?
One of the ways that demo accounts help new traders is that it gives them a taste of what to expect. This helps traders identify not only the type of trading style they should use, but whether they can cope with trading at all. There are a lot of people who would not be able to cope with trading on the fast paced forex market. These people generally do not make it past the demo account because they see what is in store for them when they start trading live.
Testing Your Strategy
Demo accounts are good and bad when it comes to testing out a strategy. As the trades are executed immediately they can give you a distorted view on the profits you may be making. This is particularly true when you are looking at short-term trading strategies that require precise entry points. Of course, if you know this and take it into account the demo account can be a very good way to test a trading strategy.
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