One of the misconceptions some people that want to get into forex trading have is that you first need to trade on a demo account in order to become a good trader. A demo account helps you to test your trading strategy and other strategies in the market, so they say. You will read or hear things such as how a demo account will help you to start earning steadily before trying out your luck on a real account.
If this were true for everyone, the forex trading industry would have very many successful traders. This is because everyone that goes into real trading will try to apply the approaches derived from their demo account strategies. It may work well for some but it may not work for others. You have to remember that trading on a demo account does not give you the feel of what it is like trading in the real market, with real money.
Unlike a real forex account, a demo account does not prepare you for the attitude to take towards dealing with real money and the risks involved. Owning a real forex trading account with a trusted forex-trading platform, such as SaxoHongKong will give you a better chance of understanding the market. This, however, does not mean that working with a demo account does not come with its advantages because it does.
The advantages of using a demo account
As much as a forex demo account does not give you the opportunity of trading with real currency, it comes with several advantages as listed below.
Practical experience of forex trading
Entering into the forex trading market with what you may assume is a huge knowledge to guarantee you success in trading, is not enough. You need some practical lessons to go with you to know in order to polish your knowledge. A demo account comes in handy here because it allows you to trade in a real-time simulated market.
The demo can take anything from three to six months, which is enough for you to gain all the knowledge you need. Using a demo account bridges the gap between what you know in theory about forex trading and the practical experience. A demo account can also make a huge difference between failure and success when you get into real trading.
Allows you to understand the trading conditions in the market
If you are new to forex trading, you may not know much about trading in foreign currency which forex trading entails. Even understanding what it is all about does not make you a professional forex trader. You need practical lessons and experience in order to cope with the real-time conditions of currency movement in the market.
A demo account helps you to understand the impact of the different currencies in the market in better detail. Understanding the currency values, the impact geopolitical events have on the strength of the currency and the key data releases are very important before learning how to use leverage to your advantage.
No risk involved
One of the main advantages of using a demo account is that you do no use real cash, which means you are free from risk. Not using your hard-earned cash for any trades, helps you to hone your trading strategies in preparation for the real thing. Trading without real money also helps you to make a decision on whether you actually want to go ahead to become a serious trader or you want to give up after using the demo account.
Wrapping it up
Forex trading comes with many demands and unless you prepare yourself psychologically, you will not succeed. Even though a demo account is not a guarantee that you will become a successful trader, it is worth every try. It prepares you for what to expect and makes it easier for you to decide on whether you want to invest in an alternative venture other than forex trading.