Many professional traders suggest that newcomers to the forex market trade in a trial account prior to trading in a forex live trading account. This allows you to test your trading strategies and methods. Since you will be trading with virtual currency, you have the opportunity to play around with currency pairs and strategies and not lose your own money.
When you work in a demo account, you should focus on one or two pairs and stick to it. The temptation to enter trades in different currency pairs is normally quite high because you are not working with real money. You should trade the pairs you intend trading in your live account. If you are a beginner, it is advisable for you to choose one or two of the major currency pairs. The most suitable pair to commence trading with is the USD/EUR. Most of the movements on the forex market involve the US dollar, so it would make sense to trade a pair which involves the US dollar.
If you start practicing your trading with a single pair, you will gain adequate experience in the most suitable methods and strategies for that particular pair. This will provide you with a solid grounding for when you move over to your live account. You should ensure that you learn as much as you possibly can about your currency pairs during this phase.
When you first set up your trial account, your account provider will allocate a particular account balance. This is normally quite a high balance and the likelihood of you commencing live trading with that level of balance is slim. You have the option of requesting a reduction in the balance to a level that you intend funding your forex live account with. To do this is simple as all you have to do is contact the provider of your trial account. A reasonable balance for you to test your skills with is around $5,000. You could choose a lower balance as it will give you a better understanding of what to expect once you start live trading.
Demo accounts generally offer extremely high leverage ratios. You should consider requesting a drop in leverage to 20:1 to 50:1. This will provide you with a more realistic view of trading with limited leverage. By making use of high leverage ratios, you are placing your trading balance at risk.
Trial Account vs. Forex Live Account
Your demo account will have the exact functionalities available in a forex live trading account. Demo accounts provide you with the opportunity to become familiar with the broker’s trading platform and determine if it suits your trading style and strategy. The only real difference between a demo and a live account is that you are not trading with real money. Beside that one important factor, there is no difference at all. The similarity provides you with an ideal opportunity to set up your demo account in the same fashion as you would your live account and determine if it works for you.
Once you feel comfortable trading in your demo account and you have tested your strategies, you should start trading in your live account. The demo account experience will provide you with a solid base to trade live.
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