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What is Demo Trading in Forex?

According to compilation of forex statistics from Analyzing Alpha, the UK has 730,000 online traders. The country’s share of the global forex turnover is 43.1%, making it the largest centre of forex trading in the world. Part of the market’s rising popularity is attributed to the Brexit Referendum, with many traders seeking to profit off the GBP’s newfound volatility. Having such a large trading community makes finding new trading opportunities faster and easier, but because the network size is partly rooted in market volatility, this avenue for investment comes with a lot of risk.

Fortunately, forex brokers have foreseen the need for risk management and opened avenues for beginner traders to get hands-on experience that can prepare them for real-world trading. If you want to take your money far with forex but lack the confidence to commit your capital, a forex demo account can help you practice.

Demo Accounts: Why You Should Use One

Demo accounts are accounts offered by trading platforms that use fake money and market simulations to allow novice traders to test trading strategies without incurring real gains or losses. Investopedia explains that demo account platforms aim to simulate current real-world market conditions as closely as possible to help novice traders get acquainted with live trading processes. This provides novice traders with an avenue to build hands-on trading experience without having to commit to trading fees or putting their capital at risk.

The features provided by most forex trading platforms include technical analysis tools, charts, and currency quotes or prices. These can train traders in reading and interpreting global market fluctuations. Hands-on learning can teach novices the factors that affect shifting currency values and how to apply that knowledge to make more informed trading decisions. Using one allows traders to assess the effectiveness of their trading plans in order to determine the best practices for their situations, which allows them to better build confidence in their trading styles and strategies.

How to Open a Demo Account

First, choose a provider for your demo account. Plus500, eToro, FXCM, and IG Markets are some examples of popular forex trading platforms where you can open a demo account. Some important features to consider would be ease of use, account expiry dates, starting balance, and customer support options.

You will also need to see which platforms your provider offers. While your provider is the intermediary broker that gives you access to the trading market, your trading platform is the software you will be using to trade. Providers usually have their own local trading platforms, but many offer more freedom with software choice. FXCM shows that some providers have proprietary platforms while also outsourcing other software. This allows account holders to choose between FXCM’s own Trading Station or their partner platforms TradingView, Ninja Trader, and MetaTrader 4. Providers that offer multiple platforms afford better flexibility.

Another note is to ensure that you are actually trading on a demo account. The Financial Times reported a trader who accidentally opened large positions on a live account, and it can spell trouble for you and the broker if you were to commit a similar mistake. This is given that you can actually simulate trading amounts much larger than your capital — though reliable platforms will ideally have safeguards against this.

The Bottomline: Demo Trading is Good Practice for the Real Thing

Our article on ‘Where You Can Invest Good Money‘ lists foreign exchange trading as one of the best ways to invest money and generate wealth. However, forex trading, while lucrative, is also highly dangerous, and without proper research investments in foreign exchange can easily turn into losses. If you want to mitigate the risks of engaging in the world’s biggest financial market, practicing with a demo account can help you determine the best strategies, build confidence, and grow enough experience to make wise trading decisions.

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