Most forex systems offer a free demo account for traders who wish to find out first-hand about how their service works. A common mistake for most beginner traders is to rush out into the forex market with their money with extremely high hopes of bringing home huge trading gains. The first step any wise trader should take before they put their money at risk is to open a forex demo account. Traders should understand, though, that some of these demo accounts might not include all the services offered by the forex systems. These are also often only available for a short period. Despite these limitations, however, using a forex demo account is still the best way to start trading in the forex market.
Trading with demo accounts is not just a game where you use play money to trade in the forex market. Before you wave off opening a forex demo account while thinking that you might miss out on immediate gains in the market, consider the following advantages that you can enjoy with your own forex demo account:
- Learning while doing: letting forex systems do all the trading for you is not trading at all. How would you know if your money’s earning potential is being maximized by these forex systems when you do not understand how they are using your money in their trading activities? Reading about forex trading is often not enough to teach you how to trade. The best way to learn how to trade in the forex market is by actually trading. You learn by doing when you open your demo account. This lets you practice the theories that you have learned about in your readings.
- No risk of monetary loss: the beauty of a forex demo account is that you do not have to put your money at risk as you learn the ropes of forex trading. But, it is this same risk-free scenario that trading experts criticize about demo accounts. In trading with a demo account, you have to make sure that you are trading as if it is a real trading account. Open a demo account with as little money as you are prepared to invest and risk in real trading and use the tools that you would like to use in a live account. Choose your currency pairs carefully and trade on a leverage that you can successfully manage without wiping out your account.
- Chance to test a strategy: a forex demo account is a safe way to test a strategy that you have not yet proven yourself. You have to devise your own trading strategy based on how much risk you want to take and the market indicators that you understand. It is easy to misread how the market moves and consequently make losing trading decisions when you do not understand at least the basic principles of price movements. Expert traders have theorized and shared certain patterns about how far up or down prices can move before they turnaround to the opposite direction. You can test how well you understand these theories and patterns using a demo account.