October 24

Demo Forex Account: A Beginner’s Guide to Practicing Forex Trading Or Is It?


A demo Forex account is a popular investment option for traders looking to make a profit. However, before investing real money, it is important to have a good understanding of the market and how it works. This is where demo trading accounts come in handy.

Luckily for everyone who wants to try their hand at trading the forex market, all brokers offer a free demo trading account. A demo forex account is a type of account that allows traders to practice trading without risking real money. Is this such a good idea?

When I was new to training Jr. Forex Traders, I would suggest that they write down their factious trades on the trade blotter so they can see how well they performed without losing any real capital. I was heavily scorned for the practice by my old colleague (my ex Treasurer Aldo Pizzoferrato.) He would say a forex trader must be a forex trader, not a paper trader.

He had several reasons for this viewpoint all valid as to why trades should occur in the “real account” of the bank. They were all valid and made me start to understand that the Jr. Traders must do battle with exchange rates working against them and for them in real-time. They had to put their strategy to work regardless of the outcome.

Cons Of A Demo Trading Account

I will give as many of the reasons not to demo trade as I can recall from all those years ago. One of Aldo’s reasons that I can vividly recall was that he knew that a trader who only traded on paper could not become familiar with true market adversity and not truly understand how difficult it is psychologically to reach trading or investment objectives.

It’s real easy to forget a trade that was part of your trading plan that is working against you, and where a horrific loss was taken on virtual money. There is no emotional pain with (paper trading) Demo trading. Another negative is that you won’t really learn how to trade in a disciplined manner unless real money is at risk. With real money on the line which also brings in real emotions and anxiety that are absent with paper trades.–Most (I am going to go out on a limb and say all) human beings want to be right. They will do anything to prove themselves correct.

Why? We all have a great investment in our self-education and from institutions of higher learning. People will cheat when it comes to demo trading (paper trading) as there is no real account of the trades. They would change them or erase them completely off the blotter. In this day and age, you can just erase a Demo account and forget you just lost all your demo account money and start fresh without any consequences.

Need To be Right, Trumps Need To Learn Proper Trading Philosophies

Let’s say that as a Jr. Trader you took some of my concepts and designed a trading system that suited your personality. You did a tremendous amount of backtesting and had a great probability to make 2x your target for a profit on the year with a 75 % expectancy–but you probably would lose on 90% of your trades. I know from past experience that most people would not like that, and could not tolerate or accept that with real funds. And if you agree you also would be denying yourself the ability to make good money because being right is more important to you than to trade forex successfully.

Some of you might think that a 90% losing rate is impossible to trade forex successfully. You would be wrong; it all goes back to the Golden Rules of trading, “Cut your losses short and let your profits run.” Let’s say that 90% of your trades lose money and that your average loss is 25 pips. On the year you make 100 trades so you end up losing 90 of them for a total loss of 2,250 pips.

But following the golden rule your average winning trade is a R-multiple of 18 for a total of 450 pips for 10 trades You have ten of those in a year, so you end up making 4500 pips on your winning trades. If you subtract your winnings from your losses, you’d end up with a profit of 2,250 pips (slightly less do to brokerage) at the end of the year. You make 2,250 pips even though, 90% of your trades are losers.

People would choose 90% Wins To Death

Here is where the Guru fanboys get hoodwinked. They believe in the 90% win rate just as those that want to learn a foreign language believe you can be speaking fluently in 30 days with no previous knowledge of Swahili. Some gurus profess an even greater than 90% win rate and the general unsuspecting public eats up their $99.00 Trading Robot to the tune of hundreds of thousands for the marketer/trader.

Let’s look at the opposite scenario using the same 100 trade example. Suppose you got to be right 90% of the time as the GuRu robot says you would. Suppose your average win was 25 pips and that your average loss was 70 pips . This means that you’d have a total of 2,500 pips in winnings pips and 6,300 pips in losses, for a loss of 3,800 pips. Would people trade that system? Yes, they would. As a matter of fact I have witnessed some forex traders use something similar till bankruptcy. Why? Because they get to be right most of the time and that is very rewarding.

Still feel I am a bit exaggerating? I know many of my students/clients felt the same way. Until they found out about a study I pointed them too, a study by a major Forex Broker. The broker had over 35,000 people who traded F/X daily. Trades were analyzed over a 12-month period, the number was staggering. The 35,00 people executed 60 million trades.

chart showing forex account failure rates

About 61.5 percent of the trades were a profitable endeavor. That’s a little over 6 out of ten forex trades. That is excellent and a money-making proposition, but here is the sharp stick in the eye, the inability to follow the golden rule of trading. You see those 35,000 trading platform accounts that were analyzed won an average of 48 pips. When they lost, they lost 83 pips. So can you see that having a very high win rate actually means nothing? Focus on running profits and cutting losses.

My suggestion would be to open a real account and trade mini lots or nano lots. The wins and losses will be real and felt. If you insist on trading a Demo account make a deal with yourself to imagine that the trades are real, and the losses and gains are real as well. You see, the subconscious mind really doesn’t know what is reality or false. I will proceed with the rest of the article as someone who wants to learn from a Demo account.

Demo or practice trading accounts are designed to simulate real trading conditions, allowing traders to get a feel for the market and test their trading strategies. However, without the most important factor, a trader’s own psychology. These practice trading accounts are typically free and offer access to real-time market data and trading tools. Traders can use demo or practice trading accounts to practice their trading skills and test out different strategies before trading with real money.

Demo trading accounts are particularly useful for novice traders who are just starting out in forex trading. By using a full demo trading account, traders can learn the basics of the trading platform of their choice broker. If they trade real small amounts of money they can also gain confidence in their trading skills and develop a better understanding of the market. Overall, free demo trading account accounts are a valuable tool for anyone interested in learning the trading platform, of their choice in forex trading.

Forex Trading Success Pyramid

Understanding Forex Demo Accounts

Forex demo accounts are virtual accounts that allow traders to practice trading in a risk-free environment. These accounts are also known as demo trading platforms or accounts and are designed to simulate real market conditions without risking real money.

Definition of Demo Forex Trading Account

A demo trading account is a type of account offered by forex brokers that allows traders to practice trading with virtual cash. These accounts are designed to help traders gain experience and confidence in trading before they start trading live with real money. forex Demo account accounts are usually free to use and come with virtual balances that traders can use to practice trading.

Benefits of Demo Forex Account

Demo accounts offer several benefits to traders, including:

  • Practice: A demo trading account allow traders to practice trading in a risk-free environment. This helps traders gain experience and confidence in trading before they start trading live with real money.
  • Risk-free environment: Since demo accounts use virtual curency, traders can practice trading without risking real money. This allows traders to test their a trading strategy and learn from their mistakes without losing real money.
  • Confidence: A demo trading account can help traders gain confidence in their trading abilities. This can be especially helpful for newcomers who are just starting out in trading.
  • Paper trading: Demo accounts are also known as paper trading accounts. This is because traders use virtual currency to trade, which is similar to trading on paper.
  • Virtual funds: Demo accounts come with virtual funds that traders can use to practice trading. These funds can be replenished if they run out, allowing traders to continue practicing.

Overall, demo accounts are a great tool for both newcomers and experienced traders. They offer a risk-free environment for traders to practice trading and gain experience and confidence before trading live with real money.

MT5 Forex Demo Account

Setting Up a Demo Forex Account

To get started with forex trading, it is recommended to first set up a free forex demo account here. This allows traders to practice trading forex in a risk-free environment, using virtual instead of real money. Here are the steps to set up a demo forex account:

Getting Started with Forex.com

Forex.com is a popular online trading platform that offers a demo account option. To set up a demo account with Forex.com, follow these steps:

  1. Go to the Forex.com website and click on “Open an Account” in the top right corner.
  2. Select “Demo Account” and fill out the registration form with your personal information.
  3. Choose the trading platform you want to use. Forex.com offers a web trading platform, a mobile app, and the popular MetaTrader 4 platform.
  4. Verify your email address and log in to your new demo account.

Using Metatrader Platform

If you choose to use the MetaTrader 4 platform for your demo account, here are the steps to get started:

  1. Download and install the MetaTrader 4 platform from the Forex.com website.
  2. Log in to your demo account using the login credentials provided by Forex.com.
  3. Familiarize yourself with the platform by exploring the various features and tools.
  4. Practice trading with the virtual funds provided in your demo account.

Overall, setting up a demo forex account is a simple process that can help traders gain valuable experience trading skills and confidence in financial markets before trading with real money. Whether using the Forex.com platform or MetaTrader 4, traders can enjoy a user-friendly interface and a variety of trading tools to help them succeed in the forex market.

Metatrader forex demo

Exploring Trading Features on Demo Forex Account

Demo forex accounts are a great way to practice trading without risking real money. They offer many features that are similar to live accounts, allowing traders to get a feel for the market and develop a trading strategy. Here are some of the trading features that traders can explore on a demo forex account.

Understanding Trading Indicators

Trading indicators are a crucial part of technical analysis. They help traders identify trends, support and resistance levels, and other important market information. Demo forex accounts provide access to a wide range of indicators, including moving averages, Bollinger Bands, and MACD. Traders can use these indicators to analyze the market and make informed trading decisions.

Leveraging Virtual Funds

Forex accounts come with virtual funds that traders can use to practice trading. This allows traders to experiment with different strategies and learn how to manage risk without putting their own money on the line. Traders can also use leverage to increase their buying power and potentially increase their profits. However, it’s important to remember that leverage can also magnify losses.

Executing Trades

Demo forex accounts provide a platform for traders to execute trades in a simulated environment. This allows traders to practice entering and exiting trades, setting stop loss and take profit levels, and managing open positions. Traders can also experiment with different order types, such as limit orders and market orders, to see how they work in different market conditions.

Customizing Charts and Drawing Tools

Demo forex accounts provide customizable charts and drawing tools that allow traders to analyze the market in detail. Traders can add technical indicators, draw trend lines, and annotate charts with notes and comments. This helps traders to identify trading opportunities and make informed decisions based on real market data and analysis.

Overall, demo forex accounts provide a valuable opportunity for traders to practice trading and develop their skills. By exploring the trading features available on a free forex demo accountt, traders can gain confidence in new strategies and prepare themselves for live trading.

Transitioning to Live Forex Account

When traders feel confident and ready to move from a demo account to a live account, there are a few important things to keep in mind. This section will cover the key considerations when transitioning to open a demo account or live forex account, including comparing demo and live accounts, understanding risks and leverage settings, and choosing the right Forex.com account type.

Comparing Demo and Live Accounts

One of the biggest differences between trading demo account and live accounts is the use of real money. While these accounts offer a risk-free environment to practice trading with virtual funds, live accounts involve real money and therefore carry higher risks. It’s important to keep in mind that trading with real money can evoke emotions that may not arise in demo account trading, such as fear and greed.

Another difference to consider is the trade execution and quality. These practice accounts often have ideal market conditions and execute trades instantly, whereas live accounts may experience slippage or requotes during volatile market conditions. It’s important to keep this difference in mind when transitioning to a live account, as it may impact trading strategies and results.

Understanding Risks and Leverage Settings

When trading with a live account, understanding risk management is crucial. Traders should be aware of the risks involved with leveraged trading and ensure they have a solid understanding of margin and capital requirements. It’s important to set stop loss orders and manage risk effectively to avoid significant losses.

Leverage settings can also impact trading results. While higher leverage can amplify profits, it also increases the risk of losses. Traders should carefully consider their leverage settings and ensure they are comfortable with the level of risk involved.

Choosing the Right Forex.com Account Type

Forex.com offers a range of account types to suit different trading styles and needs. Traders should consider the commission account, active trader account, and raw pricing account to determine which best suits their trading style and goals.

The commission account offers tight spreads and a commission-based pricing model, while the active trader account offers reduced spreads for high volume traders. The raw pricing account provides institutional-grade spreads and requires a higher minimum deposit.

In conclusion, transitioning from a demo account to a live account requires careful consideration of the risks involved and the right account type to suit trading goals. By understanding the differences between a demo trading account and a live trading account and managing risk effectively, traders can increase their chances of success in the live markets.

Frequently Asked Questions

What is a forex demo account?

A free forex trading demo account, is a trading account that allows traders to practice trading in a risk-free environment using virtual currency. It is an ideal way for beginners to get a feel for the market and for experienced traders to test out new trading strategies without risking their own money.

Which forex brokers offer demo accounts with $100?

Several forex brokers offer accounts with $100, including AvaTrade, Plus500, and XM. These demos are a great way for traders to get started with trading without risking access to their own money.

Are forex demo accounts realistic?

Forex demos are designed to simulate real trading and live market conditions as closely as possible. While there may be some differences between a demo trading account and live trading, such as slippage and order fills, these accounts are generally considered to be a realistic representation of the market.

How do I open a demo forex account?

To open a demo forex account, you will need to find a forex broker that offers demos and sign up for an account. Most brokers will require you to provide some basic information, such as your name and email address, before you can start trading your currencies on a forex demo account.

What are the benefits of using a demo forex account?

Using a demo forex account has several benefits, including the ability to practice trading without risking your own money, the opportunity to see new strategies and test out new trading strategies, and the ability to get a feel for the market before committing real funds.

How do I trade on a demo forex account?

Trading on a demo forex account is similar to trading on a live account. You will need to select the currency pair you want to trade, choose your position size, and place your order. The main difference is that you will be trading with virtual currency rather than real money.


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