Unlike the stock market, there is no physical exchange center for Forex trading. That’s the reason why it was a relatively unknown, and untapped market, for years. That is, until the world wide web exposed it to us. Now, Forex trading is open to anyone with an internet connection and a few hundred dollars to invest.
The internet gets you access to a trading platform, which works through a broker. The trading platform allows you to set up entry and exit marks, set how much you want to trade and if you want to leverage your trade. It also shows you your Forex account so you can manage your money and will be equipped with some bonus trading tools so you can study a trade beforehand.
The trading platform you choose is critical to how well you do as a trader. Brokers know this and allow you to try them out first to see how you like it. This “free trial” works by using a demo account where you are making real trades – but with fake money.
Getting Started With a Platform
With a demo account, you are following the market in real time, getting the same information and then choosing a plan and making a trade. Except the result of that trade is of no consequence to yours, or anyone’s, real money since it never actually took place. This allows you to figure out the ins and outs of a trading platform with no risk to you. It can also be used to learn how to trade in Forex successfully, before you put your own money into it.
It is recommended that you continue using demo accounts until you have at least the basics down on how to read the charts, a solid strategy in place, and your emotions in check. The last part is the most difficult as you are not really experiencing the actual monetary gains and losses that you will be once the demo is done, but if you take the demo seriously you can at least see how winning and losing will affect your state of mind and your trading habits.
Free Reports:
Keep up with your demo account until you start to see that your fake money is growing. Once you see signs of a steady profit it should mean that you are ready to hit the real thing. This could take a few months to accomplish, but that is okay. Even if you play with demos for four months, you are managing your money by not entering the Forex market until you are ready to.
Starting out is not the only time a demo is handy. During your Forex career you may also want to use a demo account when you are:
Changing Brokers
Breaking up is hard to do, but if you are not doing well with your broker it might be time to change things up. Before doing so, shop around and take advantage of the free demo trading that other brokers are offering. Try each one for at least a week to see if it has the features you want and need to be right in your trades the majority of the time.
Just like when you started out, you should be taking your time with this decision. Think of it as learning how to drive. You don’t want to be putting your trading into gear until you know exactly where the gas and brake are, and how they work. This has no bearing on how seasoned you are either. Even traders who have been making profits for years will take their time with a demo before committing to a platform and a new broker.
Trying a New Strategy
This is a little trade trick that I have learned over the years. If you think that you have developed a new strategy try it out on a demo first for a few weeks. By switching to a demo before using real money on a new strategy, you can work out any kinks before it costs you any of your account. Any major change in your trading habits should be first run through a demo for a few weeks to see if it works.
After a Long Losing Streak
If you just can’t seem to get it together and be right on a trade, stop, take a break, and switch to demo. Your judgment could be fogged by the losses, not allowing you to see what it is you were doing wrong, or missing. After a few days away from Forex, gather your journal and in demo mode, start reliving that losing streak. Without the emotion of losing real money, it will be much easier to focus on the errors you made.
Demo accounts and platforms are like simulated driving lessons, where you are behind the “wheel” but no one is really going to get hurt if you blow that stop sign. Except in this case, instead of eliminating the risk of a car accident you are eliminating the risk of losing any of your Forex money. There are few other investment opportunities out there that give you this chance to play in the “real” world, without any real risk.
Protect your assets by taking advantage of demo accounts as much as you need to. These will help you to better understand why developing strategies, the right entry set-up, and stop loss orders are all critical to your success in the Forex market.
About the Author:
Casey Stubbs is the founder of WinnersEdgeTrading.com which is one of the most widely read forex sites on the web. Winners Edge Trading has trained thousands of people to trade the Forex markets.