If you are just learning how to trade in the forex markets, it is essential that you start by opening a forex demo account rather than trading at once with real money. You can open these accounts with most forex brokers who will give you unlimited use of them, although some set time limits for these accounts, i.e. allowing you to use them for only thirty days. These virtual accounts let you trade with fake money on the markets under what are supposed to be actual conditions. There are many advantages to using a demo account if you are just starting out as a forex trader, including:
- They are free. You can open a forex demo account from virtually any currency broker in exchange for giving them your contact information, since they hope that by using their services, they can convince you to sign up as a client and open a real trading account with them.
- Virtual accounts allow you to try out different trading strategies. Many more experienced traders also use these accounts to try out strategies risk-free, since you are not trading with real money. You can trade using your strategy for as long as you want until you feel confident that your system is profitable. In fact, virtual accounts are a great way to learn trading by trial and error since you can risk new things without the worry that you’ll lose money.
- A forex demo account allows you to practice using the trading platform. Trading platforms are programs provided by forex brokers that allow you to conduct trades by making orders, as well as manage your trading account. It might take you some time to learn how to use these platforms, so you should practice first with a virtual account until you get used to all the features. You don’t want to miss the opportunity to make a winning trade because you’re still struggling with a trading platform. You can even sign up for accounts with several brokers so you can try out their platforms until you find one that you feel comfortable with.
- You can trade with as much leverage as you like. Leverage boosts the size of your trading account by allowing you to trade using money the broker loans you, usually at a ratio, i.e. 50:1 or 100:1. This means that if you have $10,000 in your trading account, with leverage, you can trade as much as $500,000 to $1,000,000. However, leverage can also be risky, particularly if you make several losing trades and the broker makes a margin call against your account. With a forex demo account, you can practice trading with as much leverage as you want without any risk of losing the money in your trading account.
The one disadvantage of a virtual account, however, is that you won’t develop risk management skills, since there is no real risk involved when trading with these accounts. Because of this limitation, you will have to work on developing the risk psychology once you’ve actually started trading with real money. Otherwise, a forex demo account is a great way to learn how to trade in the markets.