One of the most surprising things about traders using a forex demo account to learn how to trade is how different trading with real money actually is. In fact, many traders actually find themselves making losing trades when they start live trading. There are a number of reasons for this. One is that, with the element of monetary loss taken away, forex traders may find themselves taking risks they would otherwise not accept if they were trading with real money. Another is that with a virtual account, traders are actually investing with more money than they normally would. This provides an artificial safety net that allows traders to absorb small losses that they would otherwise not be able to absorb if they were trading with their own money.
Here are some tips on how to make trading with a forex demo account more effective so that you won’t experience culture shock when you actually start live trading.
- Pretend that the money in your dummy account is real. This will allow you to monitor your emotions as you’re making dummy trades so that you’ll know how you are being affected. One way of creating a genuine sense of profit and loss in your dummy trades is to withhold something you like if you make a losing trade and reward yourself with something special if you make a profitable trade.
- Adjust the amount of your forex demo account to reflect what you believe you’ll actually be trading with. Many virtual accounts come with a balance of $25,000 to $100,000 which most traders cannot afford. Ask the broker if you can adjust the amount downward to a more realistic balance, i.e. $2,000 for instance.
- Keep a forex trading journal in which you will write down what you’ve learned. This will enable you to monitor your growth as a forex trader as well as helping you set goals for your trading that will help motivate you. In addition, writing things down in a journal can help you become aware of any bad trading habits that you have which you should correct.
- Start developing your risk management strategy by trading with smaller lots, such as mini-lots of 10,000 units of currency rather than the full-sized lot with 100,000. This will allow you to manage your risk so that you’ll be safer when you start live trading.
- Take a break. Trading forex can be very addictive, particularly since you can trade 24 hours a day if you want to. However, fatigue will inevitably dull your faculties and cause you to make losing trades. Be sure to get enough sleep, particularly if you still have other financial responsibilities that you have to meet.
- Practice for as long as you can. Since most currency brokers will allow you to maintain a forex demo account for a long period of time, you should take advantage by practicing your trades for at least a month or two before you actually go into live trading. This will give you the confidence you need to trade with real money as well as building the skills you need to help you meet the challenges of forex trading.