One of the best things about Forex trading is that it lets you trade with virtual money to train yourself in trading before investing your hard-earned money. Every Forex broker offers demo accounts to their clients and trading with a Forex demo account. It’s a wise choice, especially for newbies.
Even after a trader gains enough experience and starts trading with a real account, sometimes things do not go as expected. 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.
What is a demo account?
Forex demo account refers to a trial account where investors use a specific amount of virtual money when they are new to trading. It is regarded as an educational tool and provides a risk-free start to trading.
In addition to this, you can test your strategies without putting anything to risk at all. If you are new to forex trading, I strongly advise you to trade with a demo account for at least a few weeks before opening a real forex trading account.
What is a live account?
In the forex live account, you will gain success in depositing as well as trading with real money. Hence, any profit or loss is going to be real as you start to use live accounts.
Some forex brokers let you deposit money and start trading without a validation process, while some others require you to verify your account through uploading ID and address documents before depositing money and trading live.
Forex Demo vs Real Account
A demo account is identical to a live account in terms of the trading platform, instruments, and charting. But like I said, the 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 a demo account. If you want to be successful in your trades, you need to make the same decisions while trading with your live account just like the way you are trading with a demo account.
You will be surprised to know that trading psychology is regarded as one of the primary factors which make a significant difference between the live account and the demo account. As your money is not at a stake while using the demo accounts, you can think clearly and you do become unemotional and rational. But, as soon as you start using live accounts, everything changes.
However, it is possible to get over these psychological roadblocks and train yourself to remain unemotional and rational. To overcome the transition period, you need to give yourself some time. It is recommended to start trading on live accounts by investing some accounts and similarly practice a while as you did with your virtual accounts.
If a person fails while trading with demo accounts, there are no real losses. Owing to this, the trader might develop certain discipline-related habits which might cost a lot of money during live trading.
You can’t learn the features of the trading platform without the experience or performance of your new trading strategy without testing it. A demo account is a big advantage in this respect because you can train yourself and try a new strategy without risking real money.
Other than trading psychology, a 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 accounts than demo accounts. Besides, execution time may be higher in live accounts and you may suffer from slippage.
There is a wide array of execution issues that account for performance differences between demo and live accounts. Forex brokers generally do not re-quote a price while using a demo account. However, as they are using live accounts, they might re-quote the prices often.
The dealing spreads and price feed of demo forex trading are also different from those of the live accounts. In a demo trading account, the broker might go for executing demo stop losses. However, when it comes to real trading, there are increased risks of the occurrence of a considerable amount of slippage.
If certain broker errors arise at the time of trading with a live account, it takes a good amount of money, effort, and time to resolve them as they reach out to the customer service department of the forex broker. So, the trading conditions that you are going to see in the live account may be different than the 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.