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Home Education Articles The Use of Demo Accounts in Forex Trading
The Use of Demo Accounts in Forex Trading

 

The Use of Demo Accounts in Forex Trading

In appreciation of the uncertainties that face new traders in forex trading, most FX companies offer new traders demo or virtual accounts. A demo account is meant to prepare the uninitiated trader for the world of FX trading and to give him a measure of confidence so that he can pursue trading with a degree of confidence.

Where a virtual trading account is not offered, it would be comparable to throwing a learning swimmer into the deep end of the pool and wishing him all the best. Of course the thing that is most likely to happen is a fatality.

Why virtual accounts?

The use of virtual accounts is meant to give the trainee trader the kind of experience they will need to pursue trade successfully when they eventually feel ready to switch to live trading. The greatest strength of a virtual account is that it does not expose the trader to any financial loss. Most companies have tailored their demo accounts around their real trading accounts thereby enabling the trader to access the same level of challenges, opportunities and support that they expect to face when they make the final switch.

What to look for in a demo account

While most demo accounts can be trusted to give the newbie trader adequate training, it should be remembered that not all companies create identical demo and live accounts. On the contrary, there are companies that create easy to use demo accounts that are very far removed from the live accounts. Such companies basically hope to entice the newbie by making FX trading seem easy or to create the impression that their platform is user-friendly.

A truly effective demo account should have the very same features as the live account. Most importantly, the features that are critical to the proper functioning of a FX system should be replicated in the virtual account. One such feature is customer support. Since the trader is practicing with the intention of pursuing live trading, the level of customer support that is available for live traders should be extended to him.

Some companies make the training period with a demo account worthwhile by loading the account with a certain amount of virtual money and allowing the trader to train for as long as he deems fit. The trader also has access to all the tools that allow for technical analysis so that the only change such a trader will notice when he makes the switch is the realization that real money is now at stake.

Making the final decision

A demo account provides the new trader with the kind of training that most books and online tutorials might fail to offer. Having operated the system, the trader is in a position to know whether he will be comfortable with it or not. Not only does the trader get to familiarize himself with the platform, he also gets to gauge whether FX trading is right for him or not.