How to Use a Forex Demo Account
A forex demo account is a virtual trading account where you can trade virtual funds. It is connected to a live trading platform, so it still receives live market data. Most forex brokers offer a demo account when you sign up for an account.
If you want to start trading forex, it is vital that you learn how to use the features of your chosen trading platform.
Using a demo account means you can test out the features without risking any real money. Once you are familiar with basic trading terminology and you feel able to use the demo account confidently, you will be ready to move on to trading real money.
Each trading platform is slightly different, so even the most experienced traders can benefit from using a demo account before trading real money on their chosen platform. For example, they may wish to use a demo account to test out a strategy or enter a new market.
Using a demo account does not allow you to trade real funds. However, it does simulate the forex trading experience, allowing you to learn how to use the features and functionality of the platform.
You will be allocated with a generous sum of virtual money to trade with.
Although every trading platform is different, they usually offer the same basic features, including:
- Forex quotes/prices
- Technical analysis resources
- News feeds
- Historical data
- Drawing tools
- Functionality for buying and selling currencies
As a novice trader, you should aim to place a minimum of 50 demo trades before trading with real money.
Repeating the process many times will ensure you know how to quickly open and close a trade, allowing you to become proficient in placing orders.
In addition to learning your way around the platform and tools, you should also use the demo account to learn about the following:
A stop-loss order will protect you against significant losses when making a trade.
A sell-stop order allows you to specify the amount of money you are willing to lose in a long position trade before you incur any loss. You can then take a step back from the trade until the amount of loss reaches a level you feel comfortable with.
For example, you might choose to set a 4% loss level. A buy-stop order is used to protect short positions. You can set it above the market price, and it will be triggered should the price increase above the specified level.
Using a limit order means you can set a minimum or maximum price at which you would be willing to buy or sell.
A limit order is similar to a stop-loss order. Setting a stop price means the system will trigger a sell order when the price reaches that point. Setting a limit order means the trade will only be triggered if the price reaches the limit price or higher.
With a limit order, there is no certainty that the order will be filled, particularly if the price is increasing or decreasing quickly.
‘Spread’ refers to the trade’s difference between the buying and selling prices in a currency pair.
In forex, the spread is determined at the point that a facilitator finds a buyer and seller for a currency pair.
The price is adjusted slightly on both sides, and the spread is paid to the facilitator in exchange for their services.
In forex, a lot is the size of a trade or the total amount that you trade at a particular time. The size of the lot has a direct impact on the level of risk.
The forex market is open 24 hours a day, five days a week. Between 8:00 a.m. and 12:00 p.m. EST is one of the best times to trade, as the USA/London markets overlap, leading to a high volume of trading.
Another good choice is between 2:00 a.m. and 4:00 a.m. EST, as this is when the Sydney/Tokyo markets overlap.
There are many different forex trading strategies to choose from. Some are suitable for beginners, whereas others are more appropriate for experienced traders.
Your priority should be to choose a strategy that suits your individual trading style and enables you to fit trading activity around your lifestyle.
If you are new to trading or trading currencies, it is a good idea to find out if you enjoy forex trading before making any financial commitments.
Forex trading is intense and requires commitment and time. After learning more about trading forex and practicing with the demo account, you may decide that it does not suit your personality or fit in with your lifestyle.
Beginners to forex trading will feel more confident trading real money if they have had the opportunity to practice first.
A demo account simulates the forex trading experience and allows you to see how your trade choices are affected by changes within the live market. You will have the chance to make mistakes and learn from them without needing to worry about losing any real money.
Many traders find it difficult to keep their emotions in check when they win or lose trades.
Your goal should be to manage your emotional responses in ways that promote profitability.
Being able to cope with natural psychological responses – for example, hope, fear or greed – can set the successful trader apart from the unsuccessful trader.
To become a successful forex trader, you will need to manage your money effectively.
Using a demo account will help you to practice money management techniques on real-life exchange rate changes, observing the impact of your actions and watching how they affect your virtual profits.
Whether you are a new or experienced trader, you will need to test out new trading strategies before using them in a live trading environment.
Using a demo account for this purpose will help you to familiarize yourself with the system and identify any obstacles you might need to overcome.
Many forex brokers support the MetaTrader platform. If your broker does not, you may wish to use their demo account to establish whether their platform suits your needs.
When opening a trading account with a new broker, they may give you access to special features if you open a demo account. These might include educational resources, news services or enhanced customer support.
Forex brokers may limit the virtual funds available in your demo account or set a time limit on how long you are able to use it for.
Your demo trading records may disappear at an inconvenient time, so it is important to find out about any limitations in place before you begin using the demo account.
When opening a demo account, you will be asked to share certain personal information with the broker. If you do not wish to do so, consider using an alias and a designated email address for demo trading activities.
Forex brokers may reduce or eliminate order slippage from the system to make the forex trading experience more appealing to prospective traders.
They may also reduce or remove re-quotes from the virtual trading environment. In a live forex trading environment, re-quotes are common, as the market often changes as an order is being entered.
Order execution times are much faster when using a demo account, and spreads may be set artificially tight by the broker.
For many, the trading experience is fun and thrilling. The excitement of risk-taking and entering a deal means some people are prone to excessive trading.
Since a demo account does not involve any risk of financial loss, you may find yourself making a high volume of trades. Repeating this pattern in a live trading environment will be financially risky.
Some online brokers offer high leverage in their demo accounts. Traders can use this to take very large positions in comparison to the size of their virtual account.
Although this can bring significant virtual profits if the trade is successful, it could also mean they lose all of their virtual money if the trade is unsuccessful. Again, repeating this pattern in a live trading environment will be financially risky.
A demo account is often considered to be a helpful way to avoid making mistakes in a real-life trading environment.
However, some traders do not learn from their mistakes if they have not lost any real money. This can lead to negative trading habits that they will need to address to become a successful forex trader.
Similarly, some people may not take virtual losses seriously, so they do not learn how to manage their emotions during trading.
When using a forex trading demo account, it is wise to trade with the same investment capital and level of risk as you will be using in the live trading environment.
If you do not, you may find that the trading experience falls short of your expectations when it comes to using a live account.
Opening a demo account is a straightforward process. Most brokers will ask you to provide basic information, including your full name, date of birth and email address. It is free to open a demo account, and it should be ready to use very quickly.
Using a demo account allows you to virtually trade forex without having to make a deposit. Novice traders can use a demo account to experiment with trading markets, trade at different times of the day and find an effective trading strategy. Experienced traders can use a demo account to try out a different financial market or use a newly developed trading strategy.
To get started as a forex trader, you will need to build a trading routine. This will help you to focus on your chosen path when planning trades. It will increase the likelihood of positive results and minimize the risk of making mistakes.
Writing a trading routine is simple, but you must remain committed to it. The main priority is to create a plan that complements your trading style and fits around your lifestyle.
Founded in 2007, eToro is considered a very low-risk broker as it is highly regulated by the Financial Conduct Authority (FCA) in the UK and many other regulatory bodies elsewhere.
Opening an account is free and you can access a $100,000 demo account to test the system.
It offers 47 currency pairs for trading. Spreads for forex trading have recently been significantly reduced and range from a very competitive 1 to 3 pips for major currency pairs.
You can see the full list of spreads on the eToro website.
You’ll need to deposit a minimum of $200 for Copy Trading, eToro's standout feature which allows you to follow other traders and copy their trades.
This forex broker is great for beginners due to its user-friendly interface and app and 24-hour customer support. It allows you to trade currencies, stocks and cryptocurrencies in one portfolio and the Copy Trading system is a great way to learn.
The company also offers trading courses and features a Learning Lab which houses a variety of tools to support clients with their trading experience.
68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Plus500 is a CFD provider and offers a CFD service only.
Though Plus500 is very user-friendly, CFDs are complex financial products, thus the platform is not suitable for beginners/in-experienced traders.
The company has intuitive trading platforms and new users are offered unlimited access to the demo account ensuring that they feel confident in their choices before taking the next step.
As specialists in CFDs, Plus500 has created a variety of risk management tools that are designed to maximize your profits and minimize your losses.
With ‘Close at Profit’, ‘Close at Loss’, ‘Guaranteed Stop’ and ‘Trailing Stop’ options available, there are a variety of ways users can manage their accounts.
77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
As a broker that you can trust, XTB is both well-regulated and listed on the stock exchange. The registered office is in Canary Wharf, London.
XTB offers investors and traders the opportunity to trade commodities, stocks, metals, forex, indices and cryptocurrencies, as well as ETFs and CFDs, and it is regulated in top-tier jurisdictions by FCA, CySEC, IFSEC and KNF.
Traders can easily open an account online and can choose between the commission-free Standard account or the Pro account that includes tighter spreads, but there is a commission that needs to be paid on all trades.
Deciding what platform to use to make your trades depends on your location – in most countries, you can choose MetaTrader 4 or the proprietary platform xStation (although MT4 is not available to UK customers).
XTB is a great choice for beginners thanks to the huge range of educational materials, categorized by level (beginner, intermediate and advanced) and the customer service options that are available only on weekdays.
There is a fully functional demo account so beginners can practice strategies and get used to using the platforms.
The more experienced trader will enjoy a huge range of research resources, including trading signals, technical analysis, details about different instruments, and even a heat map and market sentiments.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Moneta Markets was launched in 2009 to create a brokerage that allows fast and simple access to the markets.
Regulated by both ASIC and the FCA, this is considered to be a safe broker that you can trust, whether you are a beginner trader or a professional.
With a minimum deposit of $50, traders can buy and sell commodities, indices and CFDs in shares and cryptocurrency. 45 forex pairs are available for trading too.
The STP Account is probably the best choice for beginners, with no commission on trades but fees built into the trade. The True ECN account has tighter spreads but you will pay a round turn commission of about $6 per lot, so this is probably more effective for an experienced trader.
Alongside a functional demo account, there is a Moneta Masters course that will help investors that are just starting to learn, through a series of 144 videos.
In terms of research, alongside the usual market sentiments, economic calendars and other resources, Moneta TV is a YouTube channel dedicated to all things trading that provides useful information for beginner and experienced traders.
Although the True ECN account has costly commission charges. Moneta Markets is a great broker for all types of trading.
Using a demo trading account is a useful way to learn the basics of forex trading. It provides an opportunity to practice strategies and gain an understanding of forex terminology.
A demo account allows you to trade using virtual funds, so there is no financial risk. Experienced traders may choose to use a demo account when they want to practice a new strategy, enter a different market or sample a new trading platform.
After you have completed 50 or more trades using your demo account, you may feel ready to progress to live trading.
Before doing so, ensure that you can confidently use stop orders and limit orders and you feel comfortable using your chosen trading platform.
There are many different forex demo accounts available, so it is important to try a few before deciding on the best one for you.
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