Once you’ve completed all the previous lessons, you are now all set to trade in the markets. However, does this qualify you to trade in a real account? Well, not yet. Before getting into a real account, you must graduate from a demo account. If you want to find success in trading, starting with a demo account is the way to go.
What is a Demo Account?
A demo account is a type of trading account offered by trading platforms, which is funded by virtual/fake money for traders to experiment with the broker’s trading platform and its features. Traders use it to test their strategies as well.
The working of a demo account is almost the same as a real account. The only significant difference is that a real account requires your actual money, but a real account does not. Moreover, a demo account can be opened for FREE, unlike a real account which requires you to pay some opening charges.
If you are a novice trader, it is highly recommended to begin your trading experience with a demo account to understand the mechanics of forex trading and test your trading skills. Also, with a demo account, you can place trades with ZERO risk.
How to efficiently use a Forex Demo Account?
Build a trading plan for a real account and then test it on a demo account
The very first step in trading is to build a proper trading plan. However, many find it challenging to create a plan suitable for them. So, one can utilise a demo account and discover a plan which they feel is apt for them.
The plan may consist of:
Which session will you trade? For example, the London session, New York session, Tokyo session, etc.
Which markets will you trade? For example, some people like to focus only one major currency pair rather than all the 28 major pairs in Forex, while some traders keep an eye on all the pairs.
Which strategies will you apply? Here, you must choose the strategies which are providing you with consistent profits.
Create a trading journal to track your progress
A demo account provides you with all the past trades and transactions. So, creating a journal using the historical activities can help you determine if you are set to graduate to a real account yet. For example, according to your past trades, if 8 out of 10 trades were closed in profit, then you can consider opening a real account. And, if only 4 out of 10 trades were profitable trades, then it means that you must still work on a demo account and get more consistent before moving to a real account.
The initial and vital rules in trading
You should demo trade until you come up with a solid, profitable and consistent trading strategy.
“Focus on reducing risk, not on maximising profits.” Note that, trading is a game of how well you protect your capital and not how much you grow your capital. So, if you control your risk, you will automatically make more money.
“Patience is the key.” Many novice traders who do not have a proper strategy enter/exit a trade very early without any patience, and eventually incur losses in the long run. So, here is where a demo account can help you with this issue.
“Invest money, not emotions.” We all know the concept to 95% of the people losing and only 5% of the people winning in the market. The reason for this significant difference is that most people trade with emotions and not their strategy.
Hence, this completes the lesson on Demo Trading. And now, you can take up the quiz below to get the topic cemented.