In comparison to other financial markets, where making mistakes can be life-changing, the Forex market gives its traders the opportunity to learn from their own mistakes without losing a huge amount of money. This is realized by using demo accounts that are offered by almost every forex broker you will meet.
What is the demo account and what are the differences between demo and real forex accounts? Well, we are going to find out these and a little bit more in this article.
Let’s start.
The Meaning of Forex Demo Account
A Forex demo account is a trial account that you can use to trade with virtual (fake) money. Some brokers might give you $50,000 to start with, or you can find other options of amounts between $1,000 and $100,000. This means that you can choose the level of account to use for practice depending on how much money you want to use in your real Forex account.
Check out the Global GT review as an option for a reputable broker with a demo account.
The best thing about a Forex demo account is that it is free. In all other respects, there is almost no difference from a real account, allowing you to perform various kinds of transactions based on current quotes using all the technical tools, only in the training mode.
The Meaning of Forex Real Account
A Forex real account is an account you open right after you have decided on the broker choice. It is the inevitable part of starting the forex trading process, as without having an account and funding it you just can’t trade and make deals.
The main purpose of opening an account is to hold the currency pairs you are going to trade.
The differences between a forex demo and a real account
As was mentioned above the biggest difference between forex demo and forex real accounts is that in the case of the demo option you trade with virtual money.
But we have highlighted a few more differences you should take into account.
Let’s go through each:
Delay in filling the order
When you trade using a forex demo account, your orders are filled automatically. There is no delay between when you place the order and when it is filled. This is because there is nobody else on the other end of your request to fill it.
When you’re trading on a real account with your regular money things are a bit different. Liquidity providers are a key part of providing customers with opportunities for trading. They work to fill orders submitted by brokers, but if they cannot find anyone who is willing and able at the requested rate (especially non-market), then your chance of getting it done quickly reduces significantly - sometimes even becoming ceases entirely.
Vast spreads
Most brokers that offer market-making services do not charge a commission on trades. Instead, they make their money by taking a percentage of the spread on every trade. This makes the spread on currency pairs like EUR/USD and USD/JPY wider by a few pips, which covers the costs of providing these services. True ECN Brokers and STP forex brokers, on the other hand, don't markup the spread because they source liquidity directly from a pool of big banks and institutional investors. This means that their spreads are floating and can change at any time. When you're trading on a demo account, however, spreads are usually fixed, which makes it easier to execute various trading strategies.
Slippage in price
Sometimes the prices in the market change so quickly that your order might not be filled the way you wanted it to. This is called slippage. Slippage happens when the price of an asset goes up or down a lot after you set a stop-loss or take-profit order. Because the data in a forex demo account is simulated, there is no slippage in your open positions. This makes it easier to execute certain trading strategies.
Identity and address verification
When you trade using a practice account, it is simple and easy. There are no strict requirements, and it is designed to get traders excited about opening a real account. However, when you start getting ready to fund your account, you realize that there are more steps involved. You have to be careful with how you fund your account because some brokers are very strict. Withdrawals are also something that you have to be careful about. Before using a real forex account, brokers will ask for your identity and physical address so they can verify it. This is done for security reasons so that when withdrawals are being processed, the broker knows that it is going to the right person.
Emotional pressure
When you start trading with real money, it is a lot harder than when you trade with a demo account. This is because when you trade with real money, you can lose all of your money. This makes it easy to get scared and sell your stocks when the market is going down.
Another big difference between demo accounts and real accounts in this aspect is that there is no emotional pressure with demo accounts. This is because you are not risking any of your own money. But when you start trading with a real account, you can feel pressure because of risking to lose. So, it is important to be careful and not get too scared or greedy when trading with a real account.
Conclusion
Trading on a demo account is a great way to learn the ropes of Forex without risking any real money. However, at some point, you will need to switch to a live account in order to start making profits.
Once you have opened an account and started trading, be sure to stay disciplined and patient – it may take some time before you see results, but with hard work and dedication you can achieve success in the Forex market.
This article was written in cooperation with Hannah Madison