This article looks at the difficulties a forex trader may feel when moving from Australian forex brokers demo accounts to the forex live market.
It is highly recommended that all new traders practice their trading skills on a demo account before trading on the forex live market. These demo accounts can be acquired via Australian forex brokers free of charge. Many beginners will often neglect this option to their detriment, as it not only provides one with a chance to hone trading skills but also test the trading platform available. There are experienced traders who feel that a demo account is more disadvantageous as it causes unrealistic expectations of the live market. To ensure a smooth transition you must have a strong understanding of demo accounts and how to use them effectively.
The Australian forex brokers demo accounts
Evidence has shown that there are certain difficulties a trader may encounter when moving from a demo to forex live account. It is vital that you are aware of these difficulties if you are to utilise the demo account effectively and experience a smooth transition. There are three main obstacles encountered when changing accounts and these will be discussed below.
1. Faster trades
Unlike trades on the forex live market, the execution of trades on the demo account is instantaneous. This can be a problem if you are checking the effectiveness of a trading strategy as the immediate trades can distort the results, and ultimately performance of the strategy on a live market. It is important to remember that orders on the live market are placed in queues which can lead to delays in execution.
2. Higher trading account balance
Trading capital on the demo account is generally more than what the trader will be trading with on the forex live account. The average balance on a demo account is $10,000, which is a great deal more than the $500 required to open a standard forex live trading account. The availability of and accessibility to this large amount gives a trader an unrealistic perspective of trading and difficulty transitioning from large trades to small trades.
3. Emotional trading
Potentially the most dangerous factor of a demo account is that it does prepare a trader psychologically for the forex live market. Live trading is more stressful than the demo account as one can lose personal capital instead of virtual currency. The trading with virtual money does not prepare one for the emotions of live trading which can lead to a loss of emotional control when forex live trading.
Dealing with forex demo account dangers
The only way to benefit fully from a demo account is to use it correctly, effectively and realistically. While there are certain factors one cannot alter, you must find an account that allows you to recreate the simulated environment to match the forex live account as closely as possible.
By trading in realistic settings you will be able to develop an effective strategy for a realistic trading environment. Unfortunately, the demo account still executes instantaneous trades so you must keep this in mind when entering the forex live market. To be a successful trader you must understand the differences between the accounts and prepare for the transition properly.
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