Gone are the days when ordinary people had to struggle a lot to access various financial markets and get into trading. The entrance to the forex market has become easier than ever in the past few years and the increasing number of forex traders and the high trading volume are enough to prove this fact. Many people think that forex trading is complex and they are not sure if they can survive in the volatile currency market. However, most forex brokers and trading platforms are offering a lot of powerful trading tools like automated forex calculators to simplify the process and assist traders in making informed trading decisions.
Another facility that is offered by brokers to help new traders is forex demo accounts and each and every beginner is advised to start with demo trading before opening a live or real trading account. Traders can open a demo account on any platform, be it MT4 or MT5, but most traders these days want to trade multiple assets these days, so they prefer MT5. So, if you want to begin trading on a demo account, then MT5 is a suitable platform, it has better tools and features that will help you become a better trader in the future. If you are still not convinced about opening a demo account, then here are the top reasons you should:
Reasons to Open a Forex Demo Account
- To check If you are actually interested in currency trading
A vast majority of beginners who step into the forex market are oblivious to the market dynamics and all they know about the currency market is the huge profit potential. They lack knowledge and often think of trading as a method to make some easy money which is far from the truth. They are not fully aware of the risk and you will not be able to overcome the challenges that you face in the early stages of trading unless you are passionate about currency trading.
Trading is not going to be a fun process all the time and those who get into forex trading for the excitement it brings will lose their enthusiasm once they realise that they are required to learn a lot of things before becoming good enough to make profits. Hence, all individuals who are planning to pursue forex trading should sign up for a demo account and see if they are actually interested in trading with a serious approach while dealing with the risks.
Trading in the forex market can be stressful at times due to its unpredictable nature and frequent price fluctuations. Professional traders have clearly defined strategies to navigate the market and a beginner is also expected to come up with a trading plan or strategy that will work for them. However, the strategy will only work when they have enough knowledge and skills to implement it with perfection. This requires learning and practice.
You will have a hard time studying the market fundamentals and trading concepts if you are not really interested in topics like currencies and exchange rates. You don’t need a degree in Economics for forex trading but you should be able to learn some basics like demand and supply along with key economic indicators that impact the forex market. When you start trading on a demo account, you will get to know if you can handle the stress and risks because this account is a simulation of a live account, so if you can handle the pressure, then you can expect to trade in a live account with real money.
- Risk-Free Learning Experience
Another reason to open a Forex demo account is the learning experience you get without taking any risk. Demo accounts are similar to a live or real account but you don’t have to deposit real money for trading. The broker will fund your demo account with virtual funds or fake money to make the trading experience realistic by showing you the potential results of your trades in real-time market conditions. But the benefit you get here is the absence of risk and such an environment allows you to learn with a calm mind.
A new trader is likely to make a lot of mistakes during the learning process as they are trading for the first time. These mistakes can lead to losses in an actual account which will discourage you from trading as the fear of losing money is the biggest hurdle in the trading journey of a newcomer. But demo accounts eliminate this fear by removing the risk as your trades have no connection with the live market and it is only a simulation where you won’t have to worry about making mistakes.
With the help of demo accounts, you can learn a lot about the features, functions and tools that are available on a trading platform for free. You can also start working on your trading plan or strategy by analysing the real-time market conditions and moulding your trading system to fit well with the current market situation. Because the results you get in backtesting are purely based on historical market data and the present market scenario will be different.
Testing your strategy on a demo account is very important for developing your skills and optimising your trading system before switching to a live account. You can also use tools like profit calculators for determining the profit potential of your trades beforehand which allows you to plan and manage your trades based on the results you will get at the end of a trade.
- Mastering Money Management
The money you get on a demo account is not real, but you can still use it to learn about money management in trading. The amount of money you risk for a trade will decide the amount you can earn or lose in a trade. This can also include leverage and understanding the impact of all these aspects on your trading results is important to attain success as a forex trader. But you might be wondering if it is really possible to master money management through demo trading when the money is not real.
You don’t need to risk real money by trying various money management techniques such as limiting the risk per trade and setting a favourable risk/reward ratio. Risk management is also a part of money management as the purpose of money management is to preserve the trading capital. The trading capital gets reduced when you encounter losses during the trading process and managing the risk is essential to minimise the potential losses and keep the drawdown in limit.
Money management is not something that you can learn in a day or two as it requires months of practice and experience. Since demo trading accounts are perfect for practising and gathering experience, beginners can utilise them for setting personal trading rules that can keep them on the right track while using their funds for trading. Money management is not just about how you manage your own funds but also about how you can manage trade positions based on market fluctuations.
Minimising the trading cost by choosing a low-cost broker and trading during the active market hours are also a part of money management as a high trading cost can limit your profit potential, especially with scalping and day trading. Experts also recommend sticking with major pairs as a beginner as they are easier to trade with and have the lowest spreads due to high liquidity. With demo trading, you can understand more about all these techniques for money management.
- Learning Emotional Control
It is impossible to feel any kind of emotion while trading on a demo account as you are not exposed to any risk. However, this absence of emotions can help you to develop emotional control which can help you a lot when you start trading for real. Emotional trading is a phenomenon when the trader is unable to apply logic or reasoning to make trading decisions and they take action based on their gut feelings instead. This often leads to huge losses and habits like overtrading are a consequence of emotional trading.
When you are trading on a demo account, you can try to evoke these emotions by thinking about how you would have reacted if you were encountering such a trade scenario in live trading. For instance, when you encounter a loss, you need to think about how you will deal with it on a real account and train your mind to stay calm in any situation without getting emotional. This can be hard as many of us do not take demo trading seriously but those who can do this will surely get the benefits later on.
Building trading discipline and remaining flexible are also important to develop emotional control as those who are not disciplined will end up making impulsive mistakes. On the other hand, those who are too rigid will fail to adapt to the changing market situation and panic while seeing the market moving in a different direction. The real-time market conditions that you get on a demo account will help you to prepare yourself for such situations.
Wrap Up
In a nutshell, demo trading is much more than a practice session and must be done with a serious approach to getting the best possible results. But you should not expect to learn everything from demo trading alone as some aspects of forex trading can only be mastered when you are trading on an actual account. Still, you should not skip demo trading as jumping into live trading without any practical knowledge is not recommended. So, take your time to trade the demo and go live when you feel ready.
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