A forex demo account can be defined as any virtual account wherein the owner can play with the virtual money that it contains. The virtual money will not yield real profit or losses – trading using demo accounts is usually done for the purpose of familiarization and refinement of strategies and techniques. Usually, the virtual cash play money is given by the broker and opening such kind of account will not entail any cost.
Most traders like the fact that the real market conditions are simulated in a forex demo account. Demo accounts, once opened may or may not have an expiration period.
The following are some of the advantages that can be derived from using a demo account:
- You do not have to pay a single penny just to open a demo or practice account. But here’s the catch: you have to give your full name and telephone number and that maybe the only thing that they will ask from you until you decide to open a real forex account. Well, giving out these bits of information should not be a problem at all if you intend to make forex trading a long-term career.
- You can try out and push yourself to the limits without any kind of danger. With forex demo account, you can try out scheming different sets of techniques and strategies and see which ones will work out well for you and your virtual investments. With a demo account, you still have a license to be creative because there are no real repercussions yet. With an open heart and mind, you will be able to reflect on what your strengths and weaknesses are and you can probably work on improving the trader in you from that point onwards.
- Trading platforms can differ from one broker to another. With a demo account, you can say that you have all the chance to get comfortable with the platform. At first glance, the stages of trading and the configuration of the trading platform may be very difficult to understand. By trading using the forex demo account, you get to see the fundamental functions.
However, demo accounts are known to have several disadvantages, too. Going on and signing up without the awareness of the advantages can be dangerous. So before you decide to sign up for a free account, you should be more familiar of the following disadvantages so that you can be ready for each:
- Since there are no real risks involved, it is likely for a demo trader to develop the wrong type of trading strategy. This can be quite dangerous. Some traders fail because they have retained the “Game” mentality that they have acquired from their forex demo account.
- Another disadvantage lies on the fact that you are merely asking for the play money that serves as your capital. You did not earn it or you did not even buy it. So somewhat, you feel detached because it has no apparent value. As a result, you gain the wrong attitude. You might have the notion that earning money via forex trading is easy, which is far from being true.
Upon opening your forex demo account, just remember your purpose. By keeping yourself aligned with these, you will pick up the right attitude with the help of your awareness of the advantages and disadvantages of a practice account.