There is a consensus among many traders that trading with a forex demo account is a waste of time and that live trading is the only way to genuinely learn how to trade forex. Why is this? Simply because when you trade with a demo account, using virtual money, you are removing the pressure that is always involved when real money is on the line, affecting the trading decisions you might make. For example, when you are trading with fake money, you might make more daring trades than you might otherwise do when you are trading with real money, and not stick to the trading rules you’ve learned.
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Another criticism of trading with a forex demo account is that when traders finally start to trade with a live account, they find themselves unprepared for the high-pressure atmosphere of genuine currency trading, resulting in them being unable to deal with the emotions they feel. They might end up backing away in fear that they might make a losing trade that would cause them to lose hundreds of thousands of dollars, or they might become indifferent to the risk, simply plunging in and not caring about the consequences.
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Many beginning traders, when live trading for the first time, put in a very small amount in their trading account, as if they were gambling and they are only trading with money that they can afford to lose. One of the most important things for a trader to know is how to deal with their emotions, and trading with fake money may not teach them that because there are no stakes. If they lose money in demo trading, then they’ve lost nothing. On the other hand, it is clear that learning how to trade with a forex demo account is also an important part of a trader’s education, simply because they cannot afford to learn by trial and error when using real money in their trading account.
Live and Demo Forex Accounts: A Comparison
What are some of the things you can do to make trading with a forex demo account more like trading with a real account? Here are some suggestions.
- Give yourself a penalty whenever you make a losing trade. This can consist of doing something you don’t like to do, like mowing the lawn or cleaning out the gutters, or denying yourself something that you really like, like that favorite pasta dish. Do whatever it is you think will make you feel the pain of a losing trade, so that you’ll learn to be more careful in your trading.
- Act as if it’s a make-or-break final exam. Remember those exams you had in college that you absolutely had to pass because failure meant flunking the course? Try putting yourself in that mindset the next time you sit down to make a demo trade.
- Participate in a forex trading contest. With some real stakes at play – many of these contests offer actual prize money – you’ll finally be forced to demonstrate your mettle. Just remember to always stick to your trading plan so that you’ll be trading with discipline even while you’re getting a taste of what it’s really like to make live trades.
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