Among the most successful forex traders today trace their humble beginnings to trying it out with a forex demo account. At present, it is difficult to imagine any new trader heading straight to actual forex market trading without getting the feel of the live trading experience. The demo account becomes a very practical method of acquiring the much-needed experience without losing any amount of money. And this can be both good and bad.
The major differences between a forex demo account and a live trading account can be attributed to the attitudes and behaviors of their owners. Most holders of demo accounts seem not to take their business seriously. After all, they do not use real money anyway and they can readily replenish their virtual account with play money anytime they want with the help of their brokers. And yes, demo accounts are opened free of charge. Therefore, there is lack of commitment because of the absence of danger or risk. Pressure – the good kind – is not felt by most demo account traders.
But mainly, the two main reasons for having marked differences between demo account and live account trading, despite the same market conditions fall into two major classifications: (1) related to how the traders execute a deal and (2) the trader disposition.
How Traders Execute a Deal in a Live and a Demo Account
Based on actual observations, the differences between holders of live accounts and demo account may result from any of the following execution concerns:
- A foreign exchange broker is not allowed to re-quote a price level to a trader using a forex demo account but it can be done freely to a live account trader.
- The prices for dealing and feeding spreads can vary for demo trading and live trading.
- Demo stops for losses can be accurately ordered by a broker at any point. In the live forex trading environment, this can be very difficult due to other external factors that may be overlooked.
- There are problems that only live brokers are affected. For example, if brokers commit any error, it can result to significant delays for holder of live forex accounts. Resolutions can only be done after a few hours of negotiations. For a holder of forex demo account, these factors can be ignored since it has no real effect on his or her trading.
- There are features in an actual trading platform that is locked or inaccessible to demo traders. Therefore, upon the decision of switching to a live trading account, the broker usually does a short orientation for other features in the trading platform that were not introduced during the demonstration stage.
The following are other issues that may result to differences, collectively known as trader disposition issues:
- Forex demo account users may be lacking emotional commitment because no real money is involved in their trading.
- Most of the time, despite the absence of a plan, a demo account user does not suffer much from his or her actions. However, this can mean drastic losses for a live trader who failed to make a detailed plan of action.
- Risk evaluation is different when a demo account is involved. When such an attitude or disposition is carried out in real life, many serious and unwanted consequences may be experienced by the trader.
By pointing out the major classifications of causes of trading differences, a holder of a forex demo account can take advantage of the opportunity and putting into mind what dispositions and manners of execution should be avoided.