One of the most rewarding online money making endeavors is Forex trading but that is only if you have the proper knowledge and sound understanding of how to go about things. This is because the Forex market is highly volatile with very high competition and every decision you make is crucial and this means enough practice is required before one starts trading. This is where a demo account comes into play as it helps you navigate through the Forex world without any financial risk.
When you decide to get into the Forex trading world the first thing you need do is to choose a broker and open a free Forex trading account with them. The brokers can either be ECN or market makers and you have to know what type your forex broker is. You have two accounts to choose from; a demo or real account (you will obviously have to choose the demo account). Next you have to download a trading platform which is just a software used for trading. It contains charts, real time currency quotations among other information you need for trading. MT5 (MetaTrader 5) is the most popular trading platform. When you open a real account you have to put down some money called margin as an insurance to the broker and he (the broker) loans you real currency to trade with depending on the leverage he applies. Just as an example supposing you put down $1000 as margin and the broker offers a leverage of 100:1. When you multiply your $1000 with 100 you get $100,000 and this is the amount of loan the broker gives you. This is the money you use in trading and any profits you make are added to your margin (minus commission of course because that’s how the broker makes money) and losses are subtracted.The free Forex demo account however protects you from these types of real risks and at the same time enabling you trade in the real market using real market dynamics.
The MT5 trading platform can be quite complicated to understand and a forex demo account helps you familiarize yourself with it. This is because you have the freedom to try out anything and there are no consequences when you make a mistake which means by the time you get to the real account you know where all your tools are. The most important part of Forex trading that is the part that makes the difference between losses and profits is having the proper strategy. There are countless number of strategies that can be applied but one has to try different ones and choose the one that’s most applicable to him. These different strategies have to be tried out in the market and if done with a real account, there’s a high risk that major losses can be incurred in case a strategy doesn’t work out. This is however one major use of a demo account as no real money is risked when trying out the different strategies.
A question many people ask is; when is the right time to move to an actual account? Well there’s no universal answer to this since everyone’s situation and learning speed is different but generally if you manage to double the virtual money in your demo account, then maybe it’s time to upgrade and join the big boys.