One thing that has always been beneficial about forex trading is that most, if not all brokers, allow you to use a forex trading demo account to get a handle on trading before actually committing your money to forex trading. If you've never heard of a forex trading demo account, it's an account that looks and acts just like a real account, but the money in it is fictional.
This can be useful for several different reasons.
- Learn how to trade without any risk
You can use a forex trading demo account to learn how to trade without risking any of your money. This will allow you to make your worst mistakes with play money rather than your hard earned money.
- Learn a new trading platform
Forex demos can be used to learn a new trading platform when switching from one broker to another. You might think that all brokers allow you to buy and sell in the same way. While that is generally true, there are usually some little items that are different from broker to broker and require some getting used to.
- Test a new trading system
Sometimes trading systems seem foolproof on paper, but once you actually turn them loose on the market, they fail with style. Using a demo account is the best way to test any new trading ideas or systems that you have in mind, no matter how sure you might feel that it will work.
- Learn Proper Risk Management
Risk management is tough. It's easy to give a blanket rule of thumb and say something like, no more than 2 percent risk on any one trade, but that will not work for everyone. In my opinion, 2 percent risk per trade is excessive. You might be a trader that likes to have a few trades open at a time, 5 trades that go sour and you are down 10 percent. A forex trading demo is a great place to learn about risk and trading sizing and see how market fluctuations affect your trading patterns or methods. Sometimes, even experienced traders need to make adjustment to their trading methods and styles and a forex demo is a perfect way to do that.
Whether you are a new trader starting out, or an experienced trader trying to test some new trading methods, a forex demo account is a useful tool. If you plan on trading forex at all, you should always trade on a demo account first. The trading account you save could be your own.