What are the Benefit of Forex Demo Account?

2023-08-28
Summary:

Forex brokers offer free demo accounts to help investors learn trading platforms, enhance skills, and mitigate risks.

The vast majority of forex brokers provide free demo trading account, which have all the functions of a real account. Why is a demo account free? Brokers want potential traders to understand and familiarize themselves with their trading platform and practice without taking risks, so that these potential traders can become comfortable with the platform and deposit funds to open a real account. That's right, demo accounts can give us a more intuitive understanding of the forex market and train our trading skills in a zero-risk situation. Yes, zero risk.


It is recommended that everyone conduct a period of demo trading before formally conducting forex firm trading and form a set of stable and profitable trading skills, trading systems, and trading psychology through demo trading. Remember! Our suggestion is to do at least 2 months of practice before actual trading and ensure that you are able to practice with that "money" for at least 2 months before losing all the virtual funds in the demo account.


Advantages of Forex Demo Trading:

1. It can enable traders, as beginners, to learn basic forex knowledge, understand changes in the prices, and formulate strategies in a timely manner;

2. For traders who are not satisfied with the current trading platform, simulating account trading can be an effective way to discover satisfactory platforms.

3. Traders can have the opportunity to study the market by demo account trading when funds are not quickly digested by the forex market.


Disadvantages of Forex Demo Trading:

1. After all, the demo account is different from the actual account. The loss of funds in the demo account will not be affected by psychological factors, but the actual account loss of funds may not be certain.

2. Many traders claim that the instructions on forex demo  trading are too perfect and may miss out on some practical, unexpected situations, such as trading stagnation;

3. The perfection of demo trading can also give investors a sense of arrogance. It should be noted that excellent traders on demo trading platforms are not necessarily excellent real traders. When risks arise, demo traders find it difficult to avoid them.


As a newcomer to the forex market, others often encourage you to conduct a period of practice before starting real trading. By simulating trading, you can hone basic trading skills, develop trading plans, implement appropriate risk management, and experience trading psychology without using your hard-earned money to take risks. Once you have sustained profitability and established sufficient trading confidence, you can officially start opening a real trading account. Because you can already continue to make profits in simulated trading, making money in real trading is no longer that difficult, is it? If you think that way, then you are wrong! Great mistake! When most beginners switch from simulated trading to real trading, they usually think that their beautiful simulated trading results can be replicated in real trading. Therefore, many beginners will feel disheartened when they find that the real situation is not as good as they think! Here are a few reasons why the situation has become so bad:


Firstly, true gold and silver mean true feelings.

As a forex trader, we try our best to become as calm and rational as Kristen Stewart when trading. However, it is impossible to completely eliminate emotional factors, as emotional fluctuations inevitably increase when your money is on the rise. To further illustrate the issue, compare how you feel different when you first simulate trading and when you first experience real trading. Is your heart racing? Is there any tasteless food? Even shaking hands? If that's the case, in real trading, either you fall in love with it crazily or you become particularly nervous.


Secondly, there is no real financial risk associated with simulated trading.

Even if you take simulated trading as seriously as real trading, there is no actual financial risk associated with simulated trading. Even if you lose some money, you will feel harmless because you know in your heart that you can always obtain virtual currency to refund your simulated account. If you make mistakes repeatedly in simulated trading, you will still feel good because you know you can easily start over again, and it won't put too much psychological pressure on you. On the contrary, in real trading, if you encounter a sharp drop, your trading confidence will be greatly affected, and your future trading decisions will also be disrupted, making you less confident.


Thirdly, the temptation to make mistakes in real transactions is greater.

Because you are currently facing real financial risks, you will make more emotional investments in the trading results. Therefore, when this temptation acts on your bad trading habits, it becomes stronger and more dangerous. Just as you think you will eventually overcome those bad habits, you may find that you have made common trading mistakes, such as moving your stop-loss position, premature closing of profit positions, and even retaliatory trading.

Comparison between simulated and real transactions
Comparison/Distinction Demo Trading Live Trading
Capital Risk No actual capital risk Involves real capital risk, impacts emotional investment
Trading Psychology Relatively relaxed, less psychological pressure More tense, significant emotional fluctuations
Temptation of Errors Rarely affects confidence Stronger temptation for errors, impacts trading decisions
Execution Precision Commands are relatively flawless Influenced by emotions, potential for developing bad habits
Trading Platform Familiarization with platform and market Real platform environment, distinct from simulation
Learning Value Learning techniques and strategies Verifying feasibility of real trading
Trading Outcomes Results with zero risk Confronting fluctuations in actual outcomes
Trading Confidence Developing initial trading confidence Prone to setbacks
Trading Decisions Relatively cool analysis Influenced by emotions and risk
Market Research Opportunity for market research Difficult to conduct in-depth research due to risk
Learning Tool Vital learning and practice tool Environment for validating and improving skills

Forex demo trading is a method of conducting forex trading through a virtual trading platform that provides a real market environment and conditions, allowing investors to learn and practice trading skills, familiarize themselves with the trading platform and market conditions, and improve and verify their trading strategies. Demo trading is an important learning and practical tool for both novice investors and experienced traders.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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