Demo Trading: A Look at Their Uses, Benefits and When to Know you are Ready

Last Updated on | August 13, 2023

Demo trading is prevalent across all brokers. Forex demo accounts are the best way to learn how to trade in the real markets. So, get prepared to learn how you can use forex demo to your advantage, what you can learn from them, what you cannot learn, and the valuable practices that will make you formidable in the real markets. Forex trading demos will always enhance you. To find the best forex brokers, you will need to read our forex broker reviews.

Demo trading, also known as paper trading, is the term we use to define the practice of using forex demo accounts for trading but with fictitious money. You can place the orders, using virtual capital. Forex demos are a way for new traders to learn the business.

The use of a forex trading demo account is enhanced because everything else is real. The live price feeds, real charts, a functioning trading platform are all real. You are doing everything that any trader in the market can do, but without any real consequences, because the money is not real.

Forex demo accounts are an offering that is usually given to new traders, by the brokers. Before you sign up and start using real capital, it is always nice to take your knowledge and use it in demo trading to see if you have what it takes.

We encourage new traders looking for the best forex broker, to look at our forex broker reviews.

What We Are Going To Learn About Forex Demo Accounts

In this article, we will explore how the accounts work, why they are useful to new traders when you should and shouldn't use demo trading and other pertinent issues.

As you will find out, forex demo accounts are usually offered at no extra cost. They are free. The brokers are happy to let you try out their services and get familiar with the platform before you get into real-world trading.

As a beginner, you will have an easy time looking for the best forex broker in our forex broker reviews.

New Trader Should Use Forex Demo Accounts

Trading in a market which turns over more than $5 trillion every day is not an easy thing to do. For that reason, the first forex account you use should be a forex demo account. It typically takes a few minutes to set up a demo trading account.

We have a thing where we make new traders take a sort of forex demo oath or declaration. You can hold off on losing money for a year while you learn the ropes. Here's why:

Strategy Development

To be profitable in the forex market, you will need to have a strategy that works. No doubt, you have learned about this during your education. In forex, there is no one-size-fits-all kind of approach that you can use to be profitable.

You can learn from the masters by copy or social trading but, developing your own strategy is the best way to become consistent in terms of profitability.

Noobs Lose Money All The Time

We have seen newbies come into the market armed only with what they read from our education blogs. These confident traders thought they did not need a forex demo account, and fell out of the market, completely wiped out.

It is so easy to lose money in the forex market. Don’t do it. Rise above, focus on demo trading, and then get your skills to help you survive the real thing.

As you will find out, forex demo accounts are the stepping stone/academy, where you get to look in and participate with no consequence, until you are ready to put in some capital.

A Crucial Lesson About Demo Trading

Before we get into the details, there is something you should now. There are times when you SHOULD NOT rely on forex trading demos. It is identical to the real thing, only in a technical way. When it comes to emotions and psychology, the story is different.

It's like playing a game. Forex demo accounts will allow you to develop strategy, but when there is no real money on the line, there is very little chance you will react and behave the same way as someone using real money.

The psychology and emotions of a trader factor into the decisions made. There is simply no way for you to learn that with forex trading demos. You will find yourself acting out of an emotional response when trading in the real world.

Don’t think you can learn that using a forex demo account. The best way to find demo trade accounts to use is to find the best forex brokers in our forex broker reviews.

When To Use Forex Demo Accounts

Now that you know you cannot learn the emotional and psychological side of trading with demo trading let's get into what you can learn. There is no disputing the fact that using forex demo accounts is useful.

Here are instances where you can learn something and get skills:

Paper trading is a way for you to determine the details and nitty-gritty parts of the forex market. Some of the platforms you will get are advanced and will give you full exposure to all the essential things you need to know.
You will be able to learn the differences in the platforms. Demo trading comes in different platforms. Because they are free to use, you can shift from one to the other to see which one works best for your preferences.
The platforms will give you access to learn things like how to apply what you learned in education materials. You will be able to practice the trading routines using the forex demo account You can execute functions like:
Stop loss
Calculation of risk levels
Market limit and order placement
Entering and exiting the market at the right time

Surprising Fact: Many traders lose a lot of money every day because of platform use errors. . It would be shameful if you were to fall in the same trap, with all these free forex trading demo accounts lying around.

Live-Testing New Strategies on Demo Trading

When you develop strategies, it is good to have something that works. How do you prove that it works? Well, you do a live-test run. It is easy to get that done with forex demo accounts. Sticking to the plan, testing it and refining it, will lead to a much cooler head when you get into the real markets.

Here’s how live testing works:

First, you start with a strategy. You have learned all about this from your theoretical part of the forex education process. All you need to do is apply this knowledge and come up with a strategy that you know will work.
Trade with the strategy you have developed. With this step, you can then put the strategy to the test. Follow it faithfully and tweak it as you go where it shows weaknesses.
Get the results, analyze them, refine the strategy if it needs refining, and try to replicate those results again.

Live testing with a demo trading account is like trying to prove a theory in a scientific experiment. You will need to test, refine, and repeat until the strategy works.

Even better, you can develop more than one strategy to make sure that you always have a different way of doing things if one of them does not work for a particular trade. So, before you go live with a strategy, it is crucial to test it and make sure that it performs well in the forex demo accounts.

Demo Trading

The Amount of Virtual Capital Demo Trading Platforms Provide

The amount of fake money you get for use in the forex demo accounts is another important facet that we cannot overlook. Forex trading demo accounts will typically give you a standard amount that is usually something like $10,000 to use.

Truthfully, most of the traders who get into the market only have like $2000 to trade with, on average. It is easy to get a misleading outlook on how the profits multiply.

You can ask the broker to adjust this amount for you. It is better to reflect in your forex trading demo, the amount you intend to use for live trading later than to use the $10,000 and see things as they aren't.

The demo experience will be much closer to what you will experience in real life this way. The best forex brokers, in our forex broker reviews, offer these demo accounts.

How Long Should You Use Forex Demo Accounts?

We have talked about the purpose and use of demo trading. The next question is, how long do you need to do the demo trading to consider yourself good enough to take a crack at the real thing?

No one answer can satisfy everyone. All students have different rates of learning. However, you should never overestimate how good a student you are. Do not think you will get this in a few days.

The practice you need before you can put this knowledge into practice will vary from one person to the next.

Generally, we like to think of it this way: STAY IN THE DEMO UNTIL YOU MASTER IT AND NO LONGER MAKE SILLY MISTAKES. This takes about 50 to 100 trades. If you spread this out to a trade a day, you are looking at four months of development of strategies and testing them.

If it feels like you are going to take longer, by all means, take as much time as you need.

The forex market and trading there, in general, is like a game of mathematical probabilities. Here, we apply the law of large numbers. Because of that, you can never say that you have a profitable way to trade, after 10 or even 20 trades.

You need to do this long enough to lose, realize why, and refine your strategy to become as invulnerable as possible. Once you become thoroughly familiar with the systems, then you can claim to be profitable.

Find Your Routine Using Forex Demo Trading

The forex market is always 24 hours on for 5 days a week. So, when should you be trading using a forex trading demo? Well, most of the traders prefer to do their trading when the Tokyo, London, and New York Trading sessions are on.

Usually, this is around 12 am, 8 am and 2:30 pm Greenwich Meridian Time, respectively. The best time for a trader to personally do their thing is when they are completely awake and can focus on the markets.

So, with this knowledge in mind, you can start to develop a routine that is best for you. You need to craft something that will work well for both your mental health, family, and even work. The reason you have a forex trading demo is to iron this out.

It is not uncommon for traders to have poor routines that tend to cut into their personal life or ones that lead to bad decisions made out of tiredness. It is easy to make losses when your attention is not entirely on what you are doing.

The forex demo is where you cut your teeth and find a way to develop a routine that suits your life properly. Do not forget that you will be risking real money once you start live trading.

Pro Tip: TRADING IS NOT A SPRINT, BUT A MARATHON.

Create a Trading Journal

It is good to know how you progress as a trader. Creating a journal is the best way to gauge how far you have come from the starting point. It will help you be able to know what you have done wrong, what you have done right, and what to do next.

With a trading journal, you will have a complete record of your successes and failures. It is a chronicle of how far you have come and what you can do differently. When you are ready, the journal will show it.

There has to be a goal of when to transition, and the journal is an excellent way to know when you have reached it.

In Conclusion

Forex demo accounts are an invaluable part of the education that you undergo as a beginner in the market. You may think that you have understood how the market works in paper. However, if you have not done demo trading, you cannot say for sure that you can apply what you have learned in a practical setting.

The forex demos are there for you to know what platforms look like, how information comes in, and how you use it to decide to get into a trade.

The advice you will get from most experts is that forex trading demos are a part you should not skip. Furthermore, they offered free. There is no reason why you should not use them.

Even as you transition from the demos to real-life trading, you should be careful not to do it the wrong way.

It’s a win-win for traders and brokers when you use forex demo accounts. While you’re at it, find the best forex broker in our forex broker reviews.