Today, I am going to cover demo trading. So after you read this article, I hope you are going to have a sufficient information to open a demo trading account.
In fact, most of brokers provide demo trading account since they want you to see as their customers. But first, you should question yourself whether you need a demo trading account. For example, if you are already experienced, why would you need demo trading?
What is demo trading? What are the advantages of demo trading? Forex brokers with demo accounts… How should you consider the results from your experiences with the account? How to open a demo account step by step?
You can reach answers of all these questions in this article. So do not open a demo trading account before reading the article.
How to open a demo account?
Let’s learn opening a demo trading account step by step. To give an example, I am going to show you how to open a demo trading account in XM Forex.
Go to XM Forex demo account page and fill in the blanks as you see in the picture below.
There are blanks box of ‘first name’, ‘last name’, ‘country’, ‘city’ , ‘address’, ‘phone’, ‘e-mail’, ‘password’, ‘Language’. You have to fill in the blanks except ‘country’, ‘city’, ’address’.
After you prove that you are not a robot and agreeing terms and conditions you can complete your process by clicking ‘open a demo account’ button.
If you are already convinced with having a demo trading account. You may click here to open a demo trading account from XM Forex.
How to login in MetaTrader?
Once you have completed the signup, you will receive an email confirming your trading platform ID number from the chosen platform. The email will look like the picture displayed below, and typically accompanies the demo account confirmation email.
Now you have a demo trading account already. It’s time to download XM Meta Trader 4. Click the ‘Download an XM Trading Platform’.
You may want to use it as a software in PC, a mobile or from your web browser. It’s up to you.
The platform ID number is your username for logging into the platform and your account. This together with the password you set during registration will allow you to log in and manage your XM demo account.
Demo Account vs Live Account
Forex Demo Accounts are the trial accounts with a virtual money while Forex live accounts are the real accounts where you deposit real money. So any kind of profit or loss is real. It means risk. However you won’t take these risks in demo trading accounts.
However, since you won’t take actual risks, psychologically you will trade different then real trading. So demo trading may not reflect the real trading, totally.
Besides psychological affects, real accounts’ spread, execution time and slippage may be different from demo trading. Execution time can be higher in real account, thus you might suffer more from slippage.
For more detailed comparison, you can read our Differences Between a Forex Demo Account and Live Account article.
One of the most important advantage of demo trading is that Real-time slippage values are available. But wait, what is slippage in Forex?
Slippage is used to indicate the difference between the price you are willing to buy or sell, and market price. Let’s give an example to explain this.
Suppose that you want to enter on open at 1.1500. But in actual trading conditions, you may get by 1.1508. It seems like this eight point is negligible, right? Well, no!
Maybe next time the difference can be sixteen points or even higher when the market fluctuates rapidly.
There is no need to complain, unfortunately this is inescapable. So when you have data of the trading, you should immediately check how much profit is lost by slippage.
However, you have to have realistic expectations and always await to make profit less than your basic calculation.
Advantages of Demo Trading
- You won’t lose money because of faulty trading.
- You will be able to learn their trading platforms.
- It’s possible to have an experience with the broker since you may contact with their customer service couple of times. It’s not hard to get hints about the firm about their service and reliability.
- You may need to reconcile your trades for accounting and taxing. Demo account will let you learn about these.
The past is the past
One of the most common mistake in Forex is that people consider past as same as the future. But as the old proverb dictates “the past is the past”. So a profit that made you in past, doesn’t mean that you will have the same profit in the future.
Because the market changes faster than your system’s ability to adjust. For example, how can you know whether it is trend-following or range trading? It’s hard to differentiate between two.
After you learn a trading method it’s time to backtest the method. Backtesting starts with finding the previous data. Then you can test your method based on this data. If a method works fine in the past, you may continue your success in the future as well.
So you have backtested your method. Now what? You are on the halfway. If backtesting was successful, you need to continue with forward testing.
As for forward testing, many people claim that you shouldn’t forward test in demo trading account. They think that trading in live account is really different than demo trading. Because there is a real money deposited by you.
So you take risks. This is true. But, what if your method is problematic? Isn’t testing your strategy first in demo account more logical? These are the questions you need to ask yourself, too.
Please comment below your previous experiences with demo trading or any problem you are having with creating a demo trading account.