A forex demo account is a free trading account for practice (with no real money transactions involved). Fantastic for beginners who wish to get familiar with Forex trading. Nowadays most brokers allow their users to open demo accounts in order to try their Forex trading platforms before depositing real money.
Forex demo account is one of the best learning, practicing, educational, informational, and even entertaining tools that every newbie trader can use to his advantage. Sometimes, beginning currency traders underestimate the usefulness (and I would say the necessity) of demo account trading. A demo account can be opened with almost any of our partners but we recommend XM and in 99.9% of cases it is completely free. In a demo account, one can trade Forex with the virtual money, doing exactly the same things that one would do on the real account but without risking any real money. The advantages of the Forex demo accounts are tremendous:
- It is free. You do not have to deposit anything or pay any fees to open a demo account with the vast majority of the foreign exchange brokers. And in the case when you do not know whether Forex trading is the right thing for you at all, “free” is synonymous with “great”!
- Practice trading. With your free demo account, you can practice your trading skills, develop new strategies and learn new things about currency trading. That is possible because all currency pairs behave equally on demo and real accounts. The only difference is virtual vs. real money.
- Get to know the broker’s platform. With a demo account, you have the access to the broker’s trading platform, which you can test before moving on to the real account. And this can be very useful, especially with exotic trading platforms.
- Free charting tool. Even if you do not plan to trade with the specific Forex broker, you can always use its demo account to have free access to its trading platform’s charting tools. That can be very useful when your real account is set at the broker with a not-so-good platform.
Those are the advantages of Forex demo accounts. Of course, it is necessary to say something about the caveats, but the biggest thing about the demo accounts is that they are free, so, we can always close our eyes to their disadvantages without any damage to our purses.
- Execution may differ. Unfortunately, many brokers have an ideal execution (no slippage, no requotes, and no market delays) for demo accounts and a real execution (with some of the mentioned unpleasant things) for the real money accounts. You should understand this when moving from demo to real.
- Some demo accounts expire. Some Forex brokers make demo accounts expire after 30 days or a similar period. Of course, you can always open a new demo account, but all your stats and positions will be lost. Just try to find a broker with non-expiration demo accounts.
- Emotions are different. The psychology of Forex trading is very complex. When you trade on a demo account using the virtual money the loss will not frustrate you much and the wins will not get your heart beating like crazy. On the real accounts, emotions play a huge role. You should keep in mind that you will have to adapt your trading psychology from demo to real at one point.