There are several excellent reasons to work with forex practice accounts. This may be true especially for those traders who are just getting started. Even for those that understand trading quite well a practice account can be used for testing out a new strategy in a risk-free environment. The transition between “paper” trading and trading with real money can add an element of emotion that may cause a trader to make bad decisions. A practice account can help with this transition by allowing the trader to develop a system and follow the system. The demo or practice account can also be used by beginners to understand the mechanics of making trades and how the charting systems work on a given trading software platform.
Testing a new strategy in a live account can be a big mistake. Because it is untested by the new trader, there is a good likelihood that the trader will lose money. Even if the strategy allows for a 50/50 or breakeven at worse, the problem is that there are fees associated with trading and also slippage with closing out trades depending on the volume. Testing this strategy in forex practice accounts will allow the trader to see what works and what doesn’t before going live.
Emotions can play a big role in making trading decisions. These emotions may cause the trader to hold onto a losing trade longer, hoping that the trade will turn around. By then, with margin calls, it may be too late. Seeing a demo account get drained because of this may be a good wake-up call to a trader with a solid reminder to trade a system based on rules. Keep the systems that work and get rid of the systems that don’t.
When just getting started learning a new software trading system, the mechanics of how to execute the trades including setting the profit taking and stop-loss settings is vital. Although this may not be difficult, it shouldn’t happen with a live account. Using forex practice accounts in this scenario allows a new trader to protect themselves with appropriate stop-loss settings in the event they aren’t watching the trades every moment.
Forex can be profitable if approached the right way. Forex practice accounts will help new and experienced traders take advantage of a risk-free learning environment and create the best opportunity for success.