The Pros and Cons, of Trading a Forex Trading Demonstration Account

Michael Fasogbon

Updated: 2 December 2023

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Everyone living in the global village is participating in the foreign exchange market intentionally or unintentionally.

The foreign exchange market has an average daily trading volume of 5 trillion.

Many of the world’s largest banks, hedge funds, and insurance companies trade in foreign exchange frequently.

Some internationally renowned foreign exchange trading platforms don’t just provide foreign exchange transactions but have many additional services, such as customer service team and Demo Account.

The demo account – general advantages and disadvantages

Demo accounts are mostly free. Because the balance you trade virtually is not “real money.” So you can try a lot, let off steam and do it all without leading to a serious loss or risk.

Especially for beginners, this is perfect, but also for old hands, who, for example, want to try out a new strategy or a new approach.

Advanced traders can use the demo account to develop their trading strategies or to test existing strategy.

Even professional traders can benefit from a demo account, which allows them to get to know the functions of a trading platform and to test them for their efficiency in everyday life.

Where there is light is also a shadow. Although most online brokers offer free demo accounts, they are sometimes limited in time or to some virtual value.

It may also be that the virtual capital of a demo account will not be recharged once it has been used up.

Especially for beginners, this factor is a really big disadvantage. In addition, a demo account lacks “mental pressure.”

This means that demos do not create psychologically stressful situations due to the lack of real money when trades fail.

How to switch from demo account to a live account

Imagine you’re just starting trading on the real market right now. How do you feel? The heart beats in the neck, the hands are sweaty, and the head is closed.

And now, total helplessness.

Do not worry, that’s normal. Here are a few tips and tricks for a smooth transition:

As soon as you feel confident with how the courses work and notice that you are barely making any progress, the time is right to switch to a live account. But what does that mean to trade with real money? Quite only, you can lose money in the market. Therefore, you mustn’t trade with the cash you need in short to medium term, and the risk should never exceed your mental limit.
When you have placed your first trade, and the market begins to move against the set position, you are likely to make trading decisions that are based solely on emotions. The potential loss is associated with negative feelings, and this can quickly overwhelm. You should be aware of that and take measures with a cool head.
When trading on a demo account, such emotions are not involved, so it is important not to wait too long to change, but only until you have a real strategy that will allow you to make long-term gains. If you cannot afford venture capital, it is advisable to stay with the demo version.

Market Maker, STP & ECN brokers – the demo account and the various broker types

A demo account with a market maker allows fast and un-bureaucratic test trading. Market Makers usually find demo accounts.

An STP demo account does not exist, because the special functionality of the STP trading makes it impossible to simulate this via demo account.

In practice, real-time trading deals with real counterparties – because, in STP trading, it is not the broker himself who acts as a market maker.

An ECN demo account has the advantage that the basic conditions of this type of broker can be known.

But even here, the simulation of real trading with realistic spreads is difficult. For demo accounts of ECN brokers, therefore, make sure that the most realistic trading conditions are simulated.

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Conclusion

In general, most demo accounts are quite interesting for both professionals and total beginners.

The demo accounts of various online brokers are mostly free of charge, and you have the choice on which device you want to trade.

Demo accounts are great for gaining new experiences, repeating the old and trying out new things, or trading in a comfortable and risk-free manner.

The Pros and Cons, of Trading a Forex Trading Demonstration Account

Michael Fasogbon

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