In the modern market, many traders skip training on a demo account, and indeed, we will hardly learn to trade normally on one. When trading real money, even those who used to work successfully on a demo account might start losing due to the faults of their psychology. On the other hand, such trading may help a beginner to master all the peculiarities of opening and closing trades, while experienced traders can try new strategies and perfect their money management.
However, to achieve good results in anything, you have to practice a lot. When we are completely new to the market and want anything but lose all of our money, we need to rain on a demo account, study all the buttons of the trading terminal, master pending orders — and only then start trading for real. This is like in sports: first, you practice, show what you can do, and only then you get access to competitions; if you win, you have all chances to move on to the world level.
So, do not hope to click a couple of buttons and become an expert in financial markets either. You need to train long and hard, perfecting your skills on a demo account, and only after substantial practice, switch o a real one.
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What is a demo account?
As a rule, the broker provides their client with such an account where they get access to the real market but trade virtual money, i.e. you cannot withdraw your profit — o lose real money. On this account, you can try various strategies, risk a lot, fearless of losses, because if you lose all of your virtual money, you can always open a new demo account and start trading with a new balance once again.
What does a trader need a demo account for?
As I noted above, a demo account is meant for trying out your strategy to understand just how well it works. If it does not bring you money, you can open a new demo account use a completely different trading system. Also, a demo account allows testing the trading conditions of your broker and study the list of trading instruments.
For an experienced trader, a demo account is helpful for:
- testing their trading strategy on all market stages; it is vital to live through uptrends, downtrends, and flats as well;
- studying and trying a completely new trading strategy without risk of losing real money;
- learning to trade new financial instruments, such as oil, cryptocurrencies, gold, or stocks;
- testing a new trading robot and estimate its profitability;
- trying a new trading platform: a web terminal, MetaTrader 5, cTrader, or R Trader.
A beginner can always learn to open and close positions, define their size and place the Stop Loss/Take Profit orders. Moreover, trading terminals allow placing pending opening orders at a price higher or lower than the current market price, which means a trader can just place an order and wait for the new levels to be achieved instead of constantly keeping a close eye on the market situation.
Hence, for a beginner, a demo account provides the following opportunities:
- try yourself in trading and understand whether this sphere suits you at all;
- study all the nuances of your trading platform and learn how to open and close positions;
- learn to avoid the simple mistakes of a beginning investor, such as trading all the capital or neglecting Stop Losses;
- practice in the real market without any investments, feeling like a real trader;
- try the simplest trading schemes, the basics of tech analysis, or more advanced options.
How to open a demo account?
To open a demo account, go to the website of your Forex broker and choose Open a demo account:
Then, fill out a registration form and get your access data on the email you have provided during registration. Next, download a trading terminal, for example, MetaTrader 4, and enter your data, specifically the number of your demo account and the password — and start trading. As you see, the procedure is fairly simple and takes just moments.
How to trade on a demo account in Forex?
After you open a demo account, you may start trading. Such work does not differ from real trading in any sense. To open a trade, choose your financial instrument, click New order, specify the Stop Loss and Take Profit, and click Buy or Sell depending on what you are planning to do. If you expect the price to grow, choose Buy; if you are confident that the market will fall, choose Sell.
👉 Find more information about Demo accounts on Forex in this article.
Competitions on demo accounts
Many brokers organize competitions on demo accounts; in essence, the trader does not risk anything but can win a prize for their trading skills. Most often, you need to achieve maximum profit in a certain period. Many traders take part in such competitions; however, you can still use your knowledge and get a valuable prize or even a deposit on a real account.
For example, each Wednesday, RoboForex carries out a so-called Trade Day, where 10 traders with maximum profit in 24 hours win prizes.
The differences between real and demo accounts
The main difference is that on a real account, the trader works with their real money; they make a real profit that can be withdrawn but also risk real losses. Conversely, on a demo account, the trader works with virtual money, and neither a profit nor loss will affect their wallet in any way.
This is the key difference, but also account for the psychological part of trading: the risk of losing your money and the presence of losing positions may push the trader to recover the losses by constantly increasing the lot. On the other hand, trading on a demo account does not normally provoke strong emotions because the trader realized that they can open another account at any moment.
When do you switch to a real account?
This is quite simple: as soon as you start making a stable profit on a demo account, you may switch to a real one. However, bear in mind that your emotions will be quite different. Based on your experience, you may try trading in different phases of the market: an uptrend, a downtrend, or a flat. And if your system brings a profit on all the stages, you may try trading for real.
Also, make sure that you trade with the right lot size and that you have completed enough trades because you cannot be sure that your strategy is working after one or two successful operations. You need substantial experience, decent statistics, living through a series of losing and profitable trades to make sure that you are ready for real trading.
A demo account is a perfect way of learning to trade without risking your money. You can open such an account at a broker by just filling out a registration form and downloading a trading platform. Then, you get access to the real market and various trading systems, strategies, and robots.
Moreover, different competitions give you a chance to make a real profit by trading on a demo account but you will have to try hard and make a good profit to win.
This type of account allows a beginner to study the peculiarities of the terminal and master simple methods of trading, gradually switching to real trading. Remember that the key problem of trading for real is psychology, and if you are confident, you may open a normal account.
By Dmitriy Gurkovskiy, Chief Analyst at RoboForex