Many new Forex traders often ponder whether virtual, or ‘demo trading’ as it is commonly referred, is necessary to long term success as a trader. To be completely honest, trading on a demo account during your Forex trading course is a necessity and highly recommended. It is possible for a new trader to open up an online brokerage account with as little as 100 and begin trading, especially these days where brokers offer very high leverage. Furthermore, it would not be surprising if this new Forex trader found him/herself in a winning trade; possibly a monster of a winning trade. However, the main problem lies in the ability of the trader to stay consistently profitable.
There are many advantages to starting out on a demo account while you are on your Forex trading course. Unfortunately, many people prefer the action, excitement and thrill of trading real money and therefore consequently blow up their trading account due to the lack of necessary skills. By starting out on a demo account, the Forex trader has the opportunity to get accustomed to the trading platform he/she will be using once they start trading live funds. They also get to do some back testing of whichever strategy will be used to trade real money. Back testing a strategy will be described in a different article, but as a synopsis, it is vitally important to know that the strategy that will be traded live works, but not as important to seeing if it works live.
Everybody makes mistakes during Forex training such as mistakenly buying instead of selling or calculating the wrong position size and thereby using too much leverage, is on a demo account. Additionally, with a demo account the trader can afford to forward test their edge (strategy) in the market so that he/she gets a feel for the market, their reactions to losing trades, frequency of profitable trades etc. It must be said that a demo account will never fully replicate the experience of trading real money however many basic lessons can, and must, be learnt during your Forex trading course before moving onto a live account.
The best way to get the maximum potential from a demo account throughout your Forex training is to manage it as they would a live account, although this may seem unnatural and counterintuitive at first, it will yield great results when the trader goes live. When placing trades on a demo account keep a log of all trades and follow entry and exit rules as they would when trading real money. You must also try to stay completely disciplined and focused on the process of trading and allow the inflow of money into your account become a by-product of discipline and adherence to trading rules. Finally, after both wins and losses on a demo account, review and learn in order to avoid making the same error or help remember the positives. If the trade was unsuccessful, or even successful, because of a mistake they must find away to learn from mistakes to improve.
By following these simple steps and setting a target, perhaps to grow a demo account during the Forex trading course by 10% for instance, the Forex trader will gain a great deal of confidence which will help once trading live. The losing streaks come for any trader, but with a little bit of back testing and confidence building with a demo account it will go a very long way to help them have the discipline and confidence to stick with their strategy.