Demo Trading Forex - Practice and Testing
Forex is a complex market and is hard to trade. The more volatile the market is, the more potential there may be for trading patterns to emerge, but also the harder it can be to trade. This said knowledge of the market helps. The way to get this is firstly to study it, for example by taking a course or reading books about Forex trading. However while this kind of knowledge is important, the trader needs to experience the market. One way to do this is to open a demo account at a Forex broker. Demo accounts are free, that is they require no deposit of money to use and the losses and gains are with virtual funds, not real money. Virtual funds cannot be withdrawn and are there to simulate trading.
Free demo accounts can have quite large sums of virtual finds and the trader may wish to consider that the amount of capital in a trading account (virtual or real) may have an effect of how the trader trades. This is because as a trade happens, it tends to add to the capital in the account or subtract from it, depending on whether the trader got the direction right. However the complexity of the Forex market means that it tends to move in complex ways, tracing out patterns which are composed of changes in direction. Thus it is to be expected that a trade will have moves against the traded direction, as part of the trade. Therefore as part of the trade, the capital in the account may be depleted by these adverse moves. A well capitalised account may be able to withstand these moves and allow a trade to be seen through. However with less capital it may not be possible to do this. Thus trading on a demo account vs a real account can provide a quite different trading experience.
All this said it is still worth trading on a demo account to test out the trading platform and practice trading. Practising trading means just starting with an open position on the demo account, having picked a Forex pair to trade. The trader can apply analysis to the trade, for example technical or fundamental analysis. This provides a rationale for opening, managing and exiting a trade. It is possible to trade based more closely on the chart, but this would tend to require experience of and knowledge of trading.
So one way to start trading is to learn about an indicator such as RSI, then add it to the demo account chart and start trading on its signals. The trader may find out that these signals do not work out as expected. They may wish to add on another indicator, such as a moving average, with the idea of filtering signals. The problem is that there are accuracy issues with both indicators, thus filtering may not work as expected either. However the trader can nonetheless use these signals as a way to enter and exit a trade.
In terms of managing a trade, the trader may wish to add onto a position or take off some of the position during a trade. It can be considered that adding on can be problematic, given the complex nature of the market, that is the trade may turn against the increased position, thus increasing also the scale of the losses. Peeling off some of the position can be a way of realising gains, but at the risk of decreasing the outcome if the trade continues in the traded direction. However as these are all virtual funds, then the trader can learn from the market, without losing or gaining real money. The trader may wish to try out different indicators and even charting analysis based on candlestick charts, which are used in Forex trading. The complexity of the way Forex pairs moves can also result in 'geometrical' charting patterns being traced out. On a demo account the trader can look for pattern formation and see how they may and may not follow through.
The more experienced trader may also appreciate a demo account, particularly one which allows the trader to easily switch from real to demo. This allows the trader to test out a strategy before applying ti to the real market. It also means that the trader can test out ideas and expand their knowledge of Forex trading using virtual funds.
Thus a demo account provides a way to learn about trading and gain some experience of the market without risking real capital. The trader can then try out the live account, but may also wish to switch back to the demo account to try out ideas and continue practising trading. Below are sign up links for Plus500's demo account, eToro's demo account and IQ Option's demo account. All of these brokers provide user friendly platforms which offer switchable demo/real accounts (once the trader has opening the real account). The minimum deposit for Plus500's demo account is $100, for eToro's real account is $200 and for IQ Option is $10. The reason IQ Option has a smaller minimum deposit, is because it offers a low minimum order size of $1 (thus allowing for fractions of markets to be traded). For the demo accounts, there is no cost and these provide a way for the trader to test out the platform, before proceeding to a real account.
