The advantage of using a demo account to learn forex trading
Before you dive headfirst into the world of forex trading, you should familiarise yourself with the concepts involved in foreign exchange. Of course, if you’ve ever had to travel somewhere and exchange currency, you’ve already done a bit of forex trading yourself.
Millions of people trade trillions of dollars’ worth of currency every day on the global forex market, but forex doesn’t trade in centralised marketplaces like the New York Stock Exchange or London Stock Exchange.
Forex trades are conducted internationally, 24 hours a day, five days a week through electronic communication networks and phone networks via the internet.
Round-the-clock trading in different time zones makes forex a relatively straightforward market to access, but that also means losing money by forex trading is not difficult.
So trading forex is easy, right?
Trading forex may seem simple. Anyone can trade currencies on the forex market. You’re essentially buying a certain amount of currency and holding on to it while the exchange rates fluctuate over time, around the globe. When you feel it is the right time, you trade back the currency you were holding on to, hopefully at a profit.
Actually, it’s not that simple.
There are choices, such as spread betting, contracts for difference (CFDs), offer prices, deposits and leverage options to consider, all of which will inform the way you trade on the forex market. Practising with all of these trading options and variables, while actively consuming training materials, is the best way to prepare for live forex trading.
Which forex learning resources should I use?
The internet is flush with educational tools that will help you refine your approach to forex trading. Of course, we’re partial to our own InterTrader tools.
InterTrader provides a wealth of resources, including webinars and blog articles, which will strengthen your market familiarity, and help you learn the ‘ins and outs’ of foreign exchange. All of our resources are completely free to use.
Studying is helpful, but experience is invaluable
Once you’ve gained some theoretical knowledge, purposeful experience is the next thing you need to become a well-rounded forex trader.
They say it takes 10,000 hours to master anything, so don’t assume you’ll know all you need to know about trading forex after learning the basics. It’s recommended you place 50-75 demo trades on the platforms you’ll be using before you start trading your hard-earned money.
Practising with a demo account is the best way to gain empirical knowledge without exposing yourself to any real risk.
What is a forex demo account?
A free demo account uses a real trading platform with one exception: it uses mock currency. There are a multitude of benefits associated with practicing on a demo account, including:
- Actual practice in a live market environment
- The ability to familiarise yourself with the technical aspects of the software platform
- Access to market charts, trading signals, forex news and more
- The ability to test forex trading strategies without financial consequence
Learning from your forex demo account
Using a forex demo account over a set time period lets you master the specifics of market entry and exit while also showing you how frequently market changes occur.
As you practise on the demo account, you’ll eventually learn to make target goals.
Targets refer to how much you want to spend and how much you’re prepared to lose on an investment if the market moves in an unfavourable direction. It’s easier to try your hand at an alternative, perhaps a minor or exotic forex pair, when you’re using demo money.
You’ll learn exactly when to exit a particular investment, and utilise stop-loss and limit orders.
Remember to approach things slowly. You’ll see exactly how active and ever-changing the forex market is, which will in turn improve your market knowledge.
Most traders don’t start trading until they can confidently answer these questions:
- How do I place a stop-loss order or limit order?
- Can I set these automatically, or at the time of entry?
- How do the spreads on the platform vary over time? What is a typical spread?
- What is the lot size I can trade (1000 units, 10k, 100k)?
- Can I mix and match these lot sizes?
- Can I call customer service directly if my internet connection goes down?
- The answers will come from doing your research and practising with a forex demo account.
Try a forex demo account
Once you’ve taken advantage of all the educational resources available to you, it’s time to start demo trading. You can try InterTrader’s risk-free forex practice account here, and graduate to the real thing once you’ve got the hang of the demo.
The content of this article is the personal opinion of the author and not InterTrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.