Forex trading allows beginners to trade with virtual money as they familiarize themselves with all the necessary concepts and nuances around the art of trading.
All Forex brokers offer demo accounts to their customers, and trading with this account is recommended, especially for novice traders.
However, even after the mastery of the trading concepts, a trader may find it challenging to start trading with a real account. This is as a result of human psychology. This is because making trading decisions with virtual money is a bit easier than trading with real money because there are no risks involved.
In this article, we’re going to look at what is a demo account, real account, and the differences between the two.
Forex Demo Account
A Forex demo account is a trading account designed for persons who are looking to venture into Forex trading, but they are not familiar with the trading concepts. This trial account comes with a certain amount of virtual money that traders use to train themselves and test the working of their new trading strategies without risking their hard-earned real money. For beginners, it is advisable to start trading with a demo account for the first few weeks before signing up for a real Forex trading account.
Demo account and real account are alike in terms of charting, instruments, and trading platform. The significant difference between the two is that one you are trading with virtual and the other one you’re using real money. Traders tend to get frustrated whenever they lose their real money, and this can cause someone to make wrong trade decisions by over-trading.
Traders tend to make reasonable profits when trading with a demo account because they don’t make trading decisions out of frustrations. For you to be successful in your trades, it is good to make similar decisions to the ones you used to make when trading with a demo account.
The only way you can familiarize yourself with the features of the trading platform is by testing your new trading strategies and gauge the performance. Demo account provides a perfect opportunity for traders to train themselves and put their strategies into practice without risking real money.
Trading with a live account is more challenging, and that’s why it is essential to start with a slightly lower trading volume when transiting from a demo account to a real account. Once you’ve been able to make the right trading decisions with real money, you can increase the volume of your transactions without risking too much of your money.
Keep in mind that trading with a demo account for too long is not recommended. This is because, with a demo account, you can get used to overtrade since you’re not risking any real money. Some traders tend to transfer the same behavior to real account, which can be very risky, especially if they are not experienced enough. To become a successful Forex trader, you must be prepared to lose real money at some point.
Forex Real Account
Forex real account is where a trader deposits and trades with real money. Here there are two things involved either you make profit or loss. When it comes to trading with a real account, the first thing you need to do is to validate your account. There are Forex brokers who allow traders to deposit money and start trading before validating their accounts, and there are those that demand traders to upload verification documents before they can deposit and start trading.
Besides trading psychology, real trading account differs from demo account in regards to slippage, spreads, and execution. Based on the type of your account, you will notice different spreads on pairs in the real account than the demo account. Also, real accounts have a higher execution time, and at times, you can suffer from slippage.
Keep in mind that the trading conditions in real account differ from that of the demo account. However, it is advisable to trade with a demo account for weeks to months before you sign up for a real account and start trading with real money. The demo account also allows you to try your strategies to find out if they are working or not. Once you’re satisfied with the results, you can now move to a real account.