While you are still in the process of gaining confidence of your skills, capabilities, and strategies as a trader, it is usually recommended to open a forex demo account. This is the first major step towards accessing a real platform of a forex trader, thus making the act of opening a demo account as a pivotal event for any beginner. A strategy might sound convincing and effective in theory, but nothing beats actual application. This makes a demo account relevant to newbie and expert traders alike.
In order to learn more about the basic specifications of a forex demo account, it might be helpful to point out its major differences from a real forex account:
- Demo account execution is not the same with that of a real account. For one, in the process of demo trading, execution problems are not even included. This will bypass the status of liquidity as well as the reputation of the broker. Up to present, the non-inclusion of execution problems in demo trading is still and existing problem still hoping to be fixed.
- Usually, a forex demo account has a default balance that is larger than the usual. The rationale behind this is so that you will have more cash to burn in the process while you are learning the basics of forex market trading. Free demo accounts usually give out a starting balance that ranges from US $ 50 thousand to US $ 100 thousand. However, some traders criticize this due to the fact that the large virtual or play money balance might communicate the wrong message that forex trading is about easy money.
- In the forex demo account, there is such an option as “New Game” solution. This is the case when a demo trader asks for more virtual balance from the broker when the funds go low. In a real forex account, there is no such thing as a “New Game” solution. You should continue operating even if the fund goes low. For beginning traders, it is advised to start with low funds. It is not recommended to indulge in a big virtual balance because in real life, resources may be scarce.
- The demo account is built not only to make you familiar with how the platform of the broker and the actual trading works. Ideally, after completing a certain period of time using a forex demo account, you will be ready to move on to a real forex account. But any beginning trader should ask himself if the broker is the perfect one for you. Those who have signed in for a demo account should not in any way feel obliged to sign up to a real account right away. The best technique is to try out another broker and try out a new trading platform. Do your comparisons and pick the broker that you are most comfortable working with.
For new traders, the importance of forex demo accounts cannot be paralleled. Therefore, it is highly recommended to sign up for one before making a real forex account so that your techniques will be tested and refined. But equally important is pointing out the basic differences between a demo and a real account so that you will have no problem with your transition.