One of the best things about forex trading is that it lets you trade with virtual money to train and improve yourself before investing your hard-earned real money. Every forex broker offers demo accounts to their clients and trading with a forex demo account is a very wise choice especially for new traders. I always say that.
However, even after a trader gained enough experience and start trading with a real account, sometimes things do not go as expected. Undoubtedly the most important reason for this is the human psychology. Because taking your trade decisions with virtual money is always easier than trading with real money due to the fact that you don’t really risk anything. So, what is demo account and what exactly is real account? What are the differences between demo account and real account?
What is Forex Demo Account?
Forex demo account is a trial account with a certain amount of simulated/virtual money used by investors who are new to forex trading. Thanks to forex demo accounts, traders can train themselves and they can test their new trading strategies without risking real money. Therefore if you are new to forex trading, I strongly advise you to trade with a demo account for at least few weeks before opening a real forex trading account.
Demo account is identical to a live account in terms of trading platform, instruments and charting. But like I said, main difference is that you are trading with virtual money. Losing your real money always makes you feel bad and this can cause you to take wrong trade decisions by making you overtrade.
This is why traders are usually more successful while trading with demo account. If you want to be successful on your trades, you need to make same decisions while trading with your live account just like the way you are trading with demo account.
You can’t learn features of the trading platform without experience or performance of your new trading strategy without testing it. Demo account is a big advantage in this respect because you can train yourself and try a new strategy without risking real money.
Since trading with a live account is always far more difficult, I still recommend you to keep your trading volume low during the transition period from demo account to real account. When you are sure that you are getting used to the psychology of trading with real money, you can slowly increase volume of your transactions without risking too much of your capital.
I should warn that trading with demo account for too long may not be a good idea either. Because, it can make you undisciplined once you start trading with real account. You must learn how losing real money makes you feel in order to become a successful forex trader.
What is Forex Live Account?
Forex live account is where you deposit and trade with your real money. Therefore, any loss or profit is real. In order to be able to trade with a live account, you need to validate your account first. Some forex brokers let you deposit money and start trading without validation process, while some others require you to verify your account through uploading ID and address documents before depositing money and trading live.
Other than trading psychology, live trading account differs from a demo account in terms of spreads, execution and slippage. Depending on your account type, you will see different spreads on pairs in live account than demo account. Besides, execution time may be higher in live accounts and you may suffer from slippage.
So, trading conditions that you are going to see in live account may be different than demo account. However, it is always a very good idea to trade with a demo account for a good amount of time before trading with real money if you are a new forex trader or testing a new trading strategy.