You can easily open a free demo account to trade in the Forex market. In this article, I will show you how to quickly create a demo account with a highly rated Forex broker. With this account, you can start trading in minutes and practice your skills in the global currency market without risk. Read on to find out more about what forex trading with a demo account is, what are its benefits, and how best to use it today.
What is a Forex Demo Account?
A demo account allows you to start trading relatively fast so that you can practice before you risk real money. All Forex investors should use a demo as their first forex account to learn how to trade the currency market.
What are the Benefits of Using a Demo Account?
You can use a demo account to get used to the broker of your choice and the trading platform used. Practicing trading skills on a demo account will help you familiarize yourself with the chart format and develop basic trading strategies. Keep in mind that Forex demo accounts are free because brokers offer them in the hope this will lead people to open a live trading account. So choose your brokers carefully. Even so, demo accounts are indispensable tools. (Be sure to read my other articles regarding how to choose a broker.)
Like most modern inventions, Forex trading platforms are designed to help people work smarter. Even elite hedge funds and real estate institutions always have a ‘paper’ or demo account on which traders can practice and improve their trading skills. The benefits of running a forex demo account are, therefore, not only helpful for beginners but are good practice in the long run for all traders.
Traders use demo accounts for the following purposes:
- to practice the actions required to trade on an electronic exchange
- learn trading terminology
- learn the broker’s specific rules
- practice technical analysis
Learn to Avoid Common Pitfalls of Forex Trading
It makes sense to use demos to avoid some of the more common pitfalls of Forex trading, such as developing inconsistent trading habits or setting unrealistic expectations based on various risk parameters and account sizes that you want to translate into a real account.
How to Open Forex Demo Accounts
In general, Forex demo trading certainly has a useful place in the arsenal of tools available for both new and experienced traders. Virtually every reputable forex broker allows potential and existing clients to open a demo account for free so that traders can practice.
Traders who want to open a demo trading account can usually go to the website of one or more forex demo brokers and follow the instructions displayed there to open a demo account with the brokers they choose. If you want the best forex demo account for your needs, you may need to review the offer of many online brokers with various features to determine which broker is best for your trading style and preferences.
You must verify your identity when registering for a live account. Notwithstanding the availability of demo accounts, some brokers may require traders to pay for a demo account or register a live trading account and deposit a minimum amount of trading capital.
Demo Accounts Are Not Real Accounts – Know the Differences
Although Forex demo accounts can offer many benefits to traders, they have their limitations.
- First of all, Forex demo accounts are not able to provide their users with the same emotional intensity that they expect from trading a real money account. Let’s face it: when your hard-earned money is at risk in an actual trade, you will be emotionally engaged. One of the most challenging things a trader must learn when buying and selling in the Forex market is to contain emotions.
- There are several ways to do this, the most common being to trade with small positions sizes so that the overall risk to your capital is less than 1% at any given moment. (Read more in Money Management.) . In this way, you will not feel too nervous when you are waiting to see if the market moves in your favor or against your position. If you lose any individual trade, the amount of money lost should mean nothing to you. It should be an amount that is acceptable to you.
- If you lose sleep over your open positions, if you can’t walk away from your charts, your position sizes are too big. Reduce them.
- While the demo account simulates live trading, spreads quoted in the forex demo account should not be taken at face value as representative of spreads and transaction costs. Sometimes demo trading accounts do not charge SWAP or overnight transaction commissions, while spreads are also greatly overstated or understated. Therefore, you should understand that the transaction specifications for a demo account are usually different than in a real trading account.
Take The Next Step – Open a Demo Account
OK, if you want to open a demo account, you can do so and enter a practice trade. Follow these steps. (Note: You can find many brokers who offer free demo accounts. For this exercise, I chose a non-brokerage charting service that I use and recommend. I am not currently endorsing any specific brokers. Furthermore, please note that I am not soliciting you to open a real account with this broker or any other. This exercise is for educational purposes only. Trade at your own risk.)
- Open a new browser window.
- The system will present you with a EUR/USD chart window.
- Apply the Ichimoku Kinko Hyo indicator, which comes free with this broker’s charting platform.
- Use the information you learn from my website to analyze the EUR/USD (Euro/US Dollar) market.
- Using the Paper Trading account that comes automatically with the charting platform, you can place a 10,000 Unit trade in the direction of the trend identified by Ichimoku. (This should only be a trade on the practice, paper trading account.)
- Determine your profit target and exit price.
- Place a take profit order and a stop-loss order.
- Wait to see if you win the trade or lose it.
- And have fun! Try using Ichimoku analysis on other currency pairs as well. Then come back and post a comment here on this article to let me know how you did.