By Paul Bryan
Free FX demo accounts are a service that are loved by some yet hated by others, why is this so? Surely a free demo account can be nothing but a good thing?
Not exactly so, it does have its benefits but also has it’s pitfalls, in this article we will examine the pros and cons of such an account.
Let’s start off by looking at the demo account. For those who may not be aware, the free demo account does exactly what it says on the tin, it lets you demo FX trading for free, sounds great for a newbie trader and in many ways it is.
The brokers who offer a free FX demo account do so to help get people interested in FX, nothing wrong with that since they exist to expand the number of traders in the market and on their platform. It’s also a great way for the new trader to begin to learn FX trading.
Currency trading is no simple click and go experience, several brokers have introduced no frills platforms with low minimum deposits to get the virgin trader started and one or two have taken it a step further and allowed people to open a free demo account where you can begin trading with make-believe money until you have the confidence and knowledge to risk your own hard-earned cash.
That’s were the main pro of the demo account lies, in being able to learn the FX market and key functions of trade without risking a penny! However, this is not always good news.
When trading with ‘virtual’ money suddenly the risk becomes less, in fact risk is non-existent as you have an endless stream of make-believe money this means you may be more likely to risk on trades you know you shouldn’t and wouldn’t make in the real world. This can lull you in to a false sense of security.
Lets say you make en extravagant risk with demo money and it comes off, so you make another big risk and that comes off too, all of a sudden your confidence is up and you feel you can start playing with your own money and taking uncalculated risks.
The FX market has suddenly become very very appealing, if you can make this much money in the demo area imagine how well off you would be if you were using real money? This is where things go wrong, you then go ahead and open a real FX account and deposit your own cash.
Your confidence is up and you feel like you know what you are doing. You make a risky trade with your own cash and it fails, suddenly your FX career is over and you are sat looking at a significant loss, it seems when its your own ‘real’ money the demo you got with virtual cash counted for nothing.
Of course if you take things slowly and carefully you can avoid this and become a successful trader, but you have to have that self control. demo accounts are very useful, but only if you carry out trades exactly as you would if it was real money. Never make a trade in a demo account that you wouldn’t make with your own cash!
To help get around this several brokers now offer mini-accounts with deposits as low as $25. This is virtually a demo account anyway with such low deposits, however, its still your own cash so you are more likely to make realistic trades and not risk big time trades.
At Investawise we feel this is the best option, sure use a free demo account for a week or two while you learn the basics of FX trading, but then open an account and start with low funds, never jump both feet first into currency trading, success comes from patience, awareness, and discipline.
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