A forex practice account or a demo account is used by brokers as a ‘come on’ to attract prospective traders to patronize their services and open an account with them. Much like a toy being dangled to a kid to get his attention, the demo account features a user-friendly trading platform the use of which is rather easy to learn. The idea is to give aspiring forex traders a feel of how easy it is to trade currencies.
The simple ‘point and click’ operation of these trading platforms is enough to give prospective traders the unique and exhilarating feeling of being a trader. Quite often, those who try their hands with forex practice accounts end up opening a live trading account with real money.
But demo accounts should go beyond learning how to execute trades using the broker’s trading platforms. This is the easy part. The difficult part is learning how to use the trading platforms to pick high probability trades more often than not. The trick is to treat the forex practice account as a means to fast track your learning curb. The main objective is to evaluate and get the overall feel of the trading platform to find out if its suits your purpose of trading for profit. And the bottom line is to test if your own trading strategies fit well with the features of the trading platform albeit generate more profitable trades than the losing ones.
Often, after opening a demo account and learning how to use the trading platform with ease to execute orders, start up traders develop the wrong notion that they have all it takes to be an accomplished forex trader. Well, as we mentioned earlier, learning how to execute trades using a trading platform is the easier part. The harder part is making money out of it.
You must therefore consider a demo account as an opportunity to gauge and get a feel of a lot of things, among which are:
- To evaluate your appetite for risks: Foreign currency trading is a very volatile market. The demo account will give you a taste of how fast profits can be generated as well as how fast losses accumulate. You should be able to find out if you have the appetite to take the ebb and flow of exchange rate fluctuations comfortably.
- It gives you an opportunity to learn and test different trading strategies and technical analysis methods as well as find out if the trading platform has all the essential tools you need to help you make informed trading decisions.
- It allows you to evaluate the accuracy with which the broker executes your buy and sell orders and trading stops as well as determine the frequency of slippage during volatile markets.
- You should also be able to determine if the trading platform can accommodate money management strategies.
Trading platforms are the ultimate tools of the trade for foreign currency trading and a forex practice account essentially gives you the opportunity to evaluate them if they fit your trading purpose well.