A demo account allows beginner traders to practice their trading skills without the risk of losing their investments. It makes use of virtual money instead of real money and is very similar to the live market. A list of different attributes however makes it stand out from the live account in terms of the benefits it has to offer. Are you a beginner trader and confused between a demo account and a live account? Read on to find out the differences between the two.
Why do the differences arise?
Differences arise between the forex trading demo account and a live trading account due to the difference in the data feed provided by brokers to both accounts. . A broker has to pay to access this information and he incurs overheads which makes providing the data feed expensive. Due to the fact that demo accounts are free to open and no real investment is being carried out, brokers do not provide similar information on the market conditions to both accounts.
Demo account v/s a live forex trading account
- It is easier to trade with the demo account as you find out that commands are quickly executed than when using a live account. There is a delay when using the live account as the location of the trader is mostly very different than the location of the real market.
- There is a difference in the spreads for a demo account and the live account. Spreads tend to be tighter in a demo account and this is experienced more when the trading environment market liquidity conditions influence the spread greatly.
- The stop loss strategy is more effective when applied on a demo trading environment than in the real market. The real market is faced with an issue of clients and brokers not agreeing on the level that the stop loss order should have been applied.
- Another subtle difference between the two accounts is that one is not issued with a re-quote when using a demo account as the environment tends to be a bit controlled.
Benefits of using a demo account
· Development of a strategy
For a trader to be successful, they need to choose and stick with a certain trading strategy. Different strategies work for different people and a demo account enables one to test out different strategies and find out what is best suited for them.
· Practice of control of emotions
The most preferred way to learn how to control ones emotions n forex trading is by the use of a demo account. In order to achieve this, it is essential for one to treat a demo account like you would in the live trading market.
· Enables one to select appropriate instruments
Forex trading brokers offer a wide variety of currency pairs that on can choose to trade with. One might have a problem in picking the best currency pair but a demo account allows one to master how to trade in them over time.
· Trying out different lot sizes
Many forex trading brokers have a standard lot size of 100000 units but some offer different trading accounts which require a certain number of lot sizes. Using the demo account allows one to try out different lot sizes and determine the most ideal lot size to use.
· Frequent use of key features
A beginner trader is supposed to familiarize themselves with key trading features such as charts and indicators to gain a trading advantage. A demo account allows a trader to familiarize themselves with these features for as long as they want.
Once traders familiarize themselves with trading on a demo account they can move their trading to a live account where they can now use real money. A trader can conveniently choose between a forex cent account and a micro account which they can use to test the broker that they decide to work with before moving to a standard account.