One of the most common pieces of advice that new traders are given is to start trading with a demo account before they start trading with real money. A demo account allows you to make paper trades that simulate real ones so that the trader can learn without having to risk money on failed trades. However, there are some trading experts who believe that the best way to learn currency trading is for traders to jump into the deep end and start live trading at once.
So which position is right? Actually, both are, but for different reasons, and under different circumstances. Demo trading is ideal for learning the technical aspects of trading as well as testing out new trading strategies and methods. On the other hand, demo trading will never simulate the actual conditions of a live market, for the simple reason that at the back of your mind, you realize that there is nothing at stake. If a trade goes wrong, then you don’t lose any money. Thus, you react differently than if you had actual money in the trade.
For example, when you trade with real money, you will find yourself confronted with the emotions of fear and greed. When you are in a successful trade, greed makes you keep it open long past the point that you should have closed your position and taken your profits. This increases the risk that your trade will turn against you and you will lose money. On the other hand, fear makes you stay in a losing trade when you should already have closed it, in the hope that it would eventually turn in your favor.
What is the Best way to Use a Demo Account?
Before you start any trading, whether paper or real, it is very important that you learn the fundamentals of currency trading. There are some people who would argue that you don’t need to do so, and you can simply start trading at once simply by knowing the basics. But forex trading is actually more technical than you may realize, and so it is better that you familiarize yourself with the currency markets before you jump in.
Once you have the knowledge that you need, use the demo account to not only learn the technical aspects of trading, but also familiarize yourself with the control panel of your broker’s trading platform. This will help ensure that you can make orders quickly when you see a trading opportunity. When you’re ready, however, move to live trading, but make sure you moderate your risk while you’re still learning by investing only a small amount of money per trade. Thus, even if it is an unsuccessful trade, you have not lost a lot of money.
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