The exponential growth of new investors in the forex market, the issue of how to refrain from losing money in the market remains to be a basic concern of all. Since forex is a risky business, trading the currency is synonymous with gambling. In these circumstances when a trader is entering the business, it’s recommended that a trader begins with a demo account. Fuad Ahmed in this article is going to shed light on the pros and cons of a demo account and tell novice traders how with the simple use of a practice account, they can stay away from losing a huge amount of money.
The practice of forex trading requires skills and a good understanding of financial movements in markets. The study of markets is made in depth, and with availing oneself of every opportunity that comes one’s way. The identification and implementation practice can involve great risks as traders often miss the right opportunity and by losing the moment, they lose the money. A demo account, on the other hand, prepares them for such situations and instills in them the courage to take right decisions at the right time. It’s said that if a trader aims at excelling in forex trading, he should consider using a demo account as the best practice to win the game of forex trading.
There are forex trading companies that offer their trader customers the chance to use practice accounts before a trader starts a live trading account. This account helps them learn all the technical skills without the fear of losing any real amount of money. This induces a sense of deep knowledge about trading in the investor and guides him in a number of steps that he would normally not take right if not practiced well. Fuad Ahmed in the paragraphs below is going to explain how a demo account is beneficial and also lists its disadvantages to introduce the trader with the pros and cons of a demo account.
Advantages of Demo Accounts
Starting a demo account is the best way to get an in-depth knowledge of the forex market and see how traders in the global world are purchasing and selling currencies. The only requirement to start a demo account is your name, your address and verified phone number against which the account can be created. A trader is not supposed to invest a single penny when using a practice account, which allows him to experiment more with the open opportunities and chances.
Demo accounts are based on real-time trading situations and give the trader a chance to understand the control systems that operate in the forex market. It makes a trader accustomed to the fluctuations in prices that are always taking place. As a demo account provides traders with the opportunity to play with virtual money, the fear of losing the money just does not exist and provides the trader to be more open and fearless in the activity.
Practice accounts also help novice traders develop techniques and strategies relevant to trading. This instance of practice also gives them assistance in setting their foot in the fragile market and understand the dynamics of the markets as volatile as that of forex. It has been a common occurrence that a newbie as soon as enters the trading market, loses money. However, a demo account saves a trader from losing the money in the real time, on the first day of his entry in the market and enables him to trade as much as he likes with the virtual money.
A demo account trains a trader to develop the nature of adaptability in the new forex market environment. It makes him accustomed to the changes that are constantly coming in the market and prepare him to accept and deal with the challenges that impede his way. A practice account also makes a trader prone to analyze the changes in the currency rates and react to them in the most appropriate and best manner. This enables a trader to keep a vigil on the changing scenarios in the market.
Just as new scientific inventions and developments are made to make the lives of people easy, demo accounts are aimed at bringing ease in the lives of the traders and teach them ways of trading. These accounts introduce traders with different aspects of forex trading and bring forth to their realization the advantages and disadvantages of having a forex account. The basic of all that it saves traders from many mistakes they make in oblivion and train them to avoid these blunders.
Disadvantages of Demo Accounts
One of the biggest disadvantages of a demo account is that it trades in the virtual money and has no substantial proof of the value of currency present in the world. A trader already knows that he is going to lose nothing, therefore, makes no effort in keeping the money safe. For such traders, a demo account does not really work and doesn’t fill them with the real sense of securing the money involved. It’s a human nature that a person never realizes the intensity of a situation unless he knows it’s real. So, for a market as volatile as forex, the funda often fails and doesn’t keep traders from failing the test of trading forex.
It doesn’t matter how much the brokers try to persuade the trader with the benefits of a demo account, the account still remains to be a software and is nothing but of virtual value only. The software only evaluates the market but doesn’t give a proper exposure of the trading dynamics. The initial amount of virtual money that a trader is given to trade with is somewhere close to $50,000 to a $100,000, which for sure is not an amount many uses for a trade in the first visit to the broker.
The other problem that traders face after they jump from a demo account to the real account is the issue with the readiness. The idea behind a forex demo account is to introduce the trader with the regular and applicable strategies of the trading. Whereas, a demo account just makes the trader more careless as he knows he is not dealing in the real-time nor he undergoes the same pressure that he has to when trading real money. He also doesn’t understand the meaning of patience with a pretend account. Virtual money doesn’t give him a realistic idea about forex trading which is the basic con of this kind of an account.
The kind of success one receives with the demo account is definitely not a measure of his performance in the real environment. Many traders after using the demo account still enter the market with the energy that they will conquer whatever there is to win, yet they lose the money because a demo account doesn’t prepare them for the circumstances completely as imagined. The software that traders use with demo accounts usually gives traders imaginary figures while the majority of the traders that endure a loss in the forex market is because they fail to stand the fluctuations in the currency prices.
Many experts advise that a trader before entering the forex market should use a demo account. But, forex still remains to be a volatile market and has constantly changing prices. There is nothing which can take a guarantee that a trader is going to succeed after the use of a demo account, yet its recommended that beginning with a slight practice in hand is always better than starting as a complete novice. A demo account if not totally, at least gives a trader the idea of how markets work.