Both forex brokers and experts advise you to practice and hone your skills using demo accounts before using real money.
A forex demo account allows you to use virtual money in a totally risk-free environment, practicing without investing crime money and refining your negotiation skills, helping to get familiar with trading and developing your own strategies to put into practice when you decide to be serious.
In addition to this, forex demo accounts are also used to promote various brokers who want to attract people by convincing them to open an account to then use real money.
Benefits of Demo Accounts
- Practice without risk and ease of account opening
Using a demo account is one of the best ways to understand how the Forex market works and how traders around the world buy and sell various currencies of the world. All you need is your name, address and a valid phone number to create a forex demo account.
- Virtual money
It is not necessary to use real money to practice as you will be able to use without time limits using virtual money.
- Familiarize yourself with the tools
The demo accounts are ideal to begin to familiarize with the tools offered by the Brokers and with the broker itself.
Most demo accounts are based on real-time forex trading situations, in short, the account works exactly like a real account.
- Training in a demo environment helps to adapt more quickly to the continuous evolution of the market. The variation of currency prices makes the forex market one of the most difficult places for trade and with a demo account we have the possibility to understand the dynamics to consider when we implement a strategy
But despite its many advantages, we must not forget some limits.
Disadvantages of the Demo Accounts
- Virtual money has no value
One of the main disadvantages of the forex demo account is that you work with virtual money that has no tangible value.
So if this same item also appears in the accounts of the demo accounts we also put it in the cons, as for completed transactions the accumulated money does not exist.
- You do not become an emulating traders
It is very true that a demo account is important to start taking the first steps but it is also true that you do not become a traders pro emulating. The virtual money provided in a forex demo account ranges between $ 50,000 and $ 100,000, which is very likely that few of us will pay into a real account.
- Absence of risk management
One of the most important forex trading strategies is the concept of money and risk management. Obviously you will not want to invest an exaggerated amount of money when the transactions take place in volatile and variable markets. The unrealistic amounts of virtual money provided in the demo accounts make the user act distracted without helping to understand the value of patience.
- The truth about forex that the demo account does not say
Success in the demo account is not a good indicator of how you should trade in a real-time trading environment.
New traders believe that having earned a lot on demo accounts they are ready to replicate it in real accounts. The truth is that about 80% of businesses end in losses due to variable currency prices.
Forex is one of the riskiest markets in the world due to the constant increases and decreases in prices, there is no guarantee that you will earn or lose, the conditions that converge in these transactions do not depend on us.
Keeping a cool head and not giving in to your emotions is the only way to find long-term success in forex, and with the demo account this aspect is too often overlooked.