Transcription
Forex 101Lesson 2
Forex Demo vs Live AccountsIt is often said that practice makes a man perfect and this couldn’t be truerwith forex trading. Most traders tend to deposit their trading capital with aforex broker in hopes of turning their invested amount into a profit, but soonrealize that it is not as easy as it seems to trade forex. This is where a demotrading account can help traders to get familiar with the forex markets.Whether you are completely new to trading or perhaps you want to test outa new trading strategy that you have designed, a demo forex trading accountdoes offer some benefits, with the main factor being that you are able totrade in a risk free environment that is closely related to the real markets.However, for all the benefits that a demo trading account has to offer,there are certain aspects that clearly differentiate a demo account to a livetrading account.
Differences Demo vs LiveIf you have traded a demo account and have beentrading a live account it is not hard to miss the factthat in most cases, trade orders on a forex demoaccount are usually executed with ease without anyproblems. However, when you start trading the liveforex accounts, you might find that at times yourpending orders might not get filled. This is due to thefact that the environment a trader is trading in isvastly different from the real time markets.
Besides the order executions, other subtle differences can also come out of otheraspects:You are never re-quoted in a demo trading environment as it is a more controlledenvironment and therefore traders get sucked into a feeling of complacency.Whereas, if you were trading in a live market environment, re-quotes issomething that traders have to live with and there is no way around it.Spreads are usually tighter in a demo trading environment. Compare this to areal trading account and you might the difference in spreads being as much as 1pip. This is more evident if you were trading with a variable spread broker wherethe market conditions and the liquidity providers dictate the spreadsStop loss order execution is also always executed perfectly in a demo tradingenvironment, unlike a real trading account where traders often complain thatthe broker executed their stop loss orders at a higher level thus risking a bitmore than what the trader had hoped for.
The main reason as to why the differences arise between a demoand live trading environments is because of the data feed. A brokerhas to pay a certain fee in order to access the live market quotes.On top of this, there are additional overheads such as liquidityprovider’s fee and so on, which makes it a bit more expensive.Because demo accounts can be opened free of cost, it doesn’t makebusiness sense for the forex broker to offer the same live feed andtrading conditions in the demo trading environment.The reasons mentioned above shows how different a demo tradingenvironment can be compared to the live trading accounts.However, with all that being said, demo trading accountsnonetheless offers traders access to the forex markets to testout strategies or to learn from the markets.
Benefits of Trading DemoDemo trading accounts offer a risk free tradingenvironment for the traders. This is particularly usefulto beginners in forex trading as it helps them to getaccustomed to the markets. Besides the above, a demotrading account can also be used to trade the variousinstruments that are offered by the broker. Althoughthe spreads and/or commissions may differ, they closelymirror the real trading environment. In this aspect ademo account can also be used to test the tradingconditions provided by the broker.
Once traders are familiar with the demo tradingconditions, they can then move to trading in a realaccount.Traders can then opt for a micro or a forex cent accountwhich can help them to accurately gauge the actualtrading conditions as well as the market conditions withthe broker. Most brokers nowadays offer micro forextrading accounts start with deposits for as little as 1.These micro accounts could very well be the next stepfor traders to test out their potential forex brokerbefore finally opening a standard trading account.
Forex 101 Lesson 2. Forex Demo vs Live Accounts It is often said that practice makes a man perfect and this couldn’t be truer with forex trading. Most traders tend to deposit their trading capital with a forex broker in hopes of turning their invested amount into a profit, but soon realize that it is not as easy as it seems to trade forex. This is where a demo trading account can help .
