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A demonstration account is a special free software used by a broker or dealer to educate its clients before working with real money. A Forex demo account provides access to a trading terminal program and a virtual amount of money.
Many traders wonder whether they really need this demo account or if it is better not to waste time on it and immediately pass it to real trading? The answer to this question is obvious – this account is extremely important for beginners. What are the benefits?
Benefits of trading first with a demo account
1. The opportunity to study the trading platform.
A demo account allows you to get the exclusive experience that is needed for effective trading. The training account is identical to the real account. The functionality of the trading terminal, in this case, will not be limited. Moreover, you will have a chance to speculate in real-time market fluctuations. In other words, technically, you will not find any differences between a real and a demo account. Every novice trader will get:
- information about the conclusion of transactions and the procedure for their execution;
- access to the graphical representation of price movement;
- the ability to study all features of the terminal;
- unlimited number of attempts to trade on the Forex market without the risk of losing real money;
- precious experience in trading.
2. A better understanding of the market and the basics of analysis.
While you are trading on a demo account, you can create a kind of action plan that will later become your trading algorithm with real funds.
Take into account the following points in your trading plan:
- Time of trading. Trading never stops on weekdays, and you can make deals 24 hours a day. But it is better to stick to the same time every day to learn more about how this trading session works.
- Select the market for trading. By focusing on a few markets, you can better understand their features and successfully form an opinion about them.
- Learn the most common strategies. Select the tools you will use to make trading decisions, try all known strategies and develop your own strategy. It will allow you to better forecast the time of opening and closing a deal.
- Think about risk management instruments. Risk management is an integral part of successful long-term trading. It is the ability to minimize losses during trading. Risk management will help you indicate a clear number of lots that can be used in a specific period. You will learn to control the size of the trade.
3. You will learn to control your emotions.
It is one of the most complicated and yet important aspects of working in the financial markets. If you want to progress in trading, you must hone your skills in controlling emotions. Professional speculators tend to experience a wide range of emotions during trading, from greed and fear to euphoria.
All these psychological worries have a significant effect on the decision-making process. If you are only starting in the Forex world, then a demo account will help you better understand how to strain your nerves and emotions on the road to success.
4. The possibility to create your trading strategy.
There are many ready-to-use trading algorithms. But experts always advise creating your own approach. There are several important components to consider:
- Trading tool selection. Determine which currency pairs you will trade and become experts when reading those pairs.
- Determine the size of your trades. Decide in advance what capital you can allocate to trading. It will help you control the risks for each trade.
- Entry points. Develop the rules according to which you will take a long or short position in a currency pair.
- Exit points. Develop a set of rules that will help you get out of a difficult situation.
It is very easy to open a demo account on Forex. This process takes a few minutes and immediately allows you to start risk-free trading.
Using a training account is the best way to start working in the foreign exchange market, as it gives you the opportunity to assess your knowledge, test your trading strategy and develop your own trading methodology.
The only disadvantage of a virtual account is the psychological factor when switching to real money trading. But if you feel confident about your skills and are ready to risk your own funds – go ahead, open a real trading account and start earning big money.