2 Sides of a Demo Account | Pros & Cons

In our previous article, we discussed using a demo account. Today, let us evaluate both the advantages and disadvantages of utilising a demo account in forex trading.

For beginner traders, it is always encouraged to practice on a demo account to have a better gauge of whether forex trading is suitable for you. Everyone is different. Some prefer trading the equities market, some prefer trading currency pairs, while some prefer trading commodities or cryptocurrencies. Trying things out on a demo account is risk-free when you discover your trading goals, style of trading, and preferred trading hours.

Choosing a suitable and reliable forex broker is a field of knowledge often neglected by many. Therefore, it is crucial to conduct thorough due diligence before engaging with any forex broker, especially before depositing real money. You can check the trading environment offered and the service and support provided by opening and operating with a demo account.

Every budding trader dreams of pocketing profits from the currency market. However, many also overlook the importance of backtesting and practising a strategy until it is proven solid and consistently profitable. This could be done easily with a demo account, as no real money is involved. A trader could evaluate his performance unbiasedly through this manner as no emotions will be involved even when mistakes happen.

When it comes to trading, many newbie traders tend to think they need to learn a new strategy or find the next winning trading indicator to make more profits. Nevertheless, trading is not so much about strategy and execution but more about emotional control. Trading on a demo account does not involve monetary losses and profits, thus, emotions are not part of the equation. When a trader switches from a demo account to a live account, he immediately realises that trading is not as easy as it seems.

Not having a stop loss, adjusting a stop loss just not to face a loss, rushing in a trade, not following a trading plan – these mistakes do not cost a penny. Without real money on the line, it is hard to learn as much as participating in the live market because bad habits do not come with any real consequences. In turn, newbie traders might develop bad habits that could be hard to shake off in their trading journeys.

The majority of traders think that as long as they are profitable in demo accounts, they are invincible in the live markets. Trading an unrealistically large demo account could make hitting a margin call seem impossible, especially when you are trading a reasonable lot size, but that does not translate into consistently profitable trading. If you are looking to trade on a demo account, make sure you set the starting capital and leverage level in accordance with the amount you plan to invest in real money terms so you are not trading unrealistically.