So, you’ve got the itch to start trading forex. You want in. You want to make money. You look around for where to go or who to talk. The demo account provides an easy way to make this transition from paper trader to real trader without risking any money, but is it really necessary? Here’s what you need to know to make the right choice.
Demo Trading vs Live Trading
The important thing to remember is that demo trading and live trading are very different animals. The mechanics of demo accounts are simple – they allow you trade with “play money” while giving you access to the same charts, tools, and indicators that you’d have on a real account.
The key difference between demo trading and live trading is that real-time price quotes are not available in a demo account, and your profits and losses on a demo account cannot be withdrawn without transferring the balance back to your broker’s cash account (in other words, you can’t withdraw any money from a demo unless you were initially funded with a live account).
Pros and Cons of Demo Trading
There are several pros to demo trading. First, it allows you to trade without risking any real money. Second, it provides a risk-free way to learn the mechanics of forex trading. Third, demo trading can help you become comfortable with the platform and execution methods of your broker.
Cons to demo trading include the time and effort required to navigate and learn a new or unfamiliar platform (if your broker isn’t easy-to-use, learning it will take much longer), the fact that you cannot withdraw any money from a demo account if you initially funded it with play money (and thus, in order to convert your demo account to a live account, you’ll need to deposit at least $100), and the temptation to overtrade or trade recklessly in order to make money (since there is no real money at risk).
When to Move to a Live Account
The decision of when to move from demo trading to live trading is ultimately up to you, but here are a few things to consider:
• If you have been demo trading for years and do not feel like you’ve learned anything in that time, it may be time to move. The same holds true if you cannot seem to make money on your demo account no matter how much effort you put into learning the platform and indicators.
• If you are consistently profitable on your demo account and have a firm understanding of how forex trading works, it may be time to move to a live account. Remember, however, that live trading involves real-time price quotes and the potential for real losses – so make sure you are comfortable with taking risk before making the transition. Demo trading is a great way to learn the mechanics of forex trading without risking any real money, but it’s important to remember that demo and live accounts are very different animals. Moving to a live account should only be done if you are comfortable with taking risks and have been profitable on your demo account.