Why use a demo account?
As you will have understood, the main purpose of a Forex demo account is to allow you to test a broker's trading platform in order to verify that its features match your investment method. But these accounts also allow you to test all the services and tools of this broker without spending a single cent.
It is also very interesting, if not essential, to open several demo accounts with different brokers in order to be able to compare the different technical characteristics of each of these solutions. In this way, you will be sure of your choice and will be able to launch yourself with confidence.
But demo accounts also have another important advantage, as they allow you to test your trading strategies without risk and only start trading when you have developed a method that you are happy with.
How to choose the best Forex demo account?
In order to make an accurate comparison between the different demo accounts offered by CFD brokers, you will need to evaluate a number of important criteria, the main ones being
- The type of access to the platform: Depending on your preferences, you may choose an online platform or one that requires downloading.
- Virtual capital: It is best to choose a demo platform with a large virtual amount to test long-term strategies.
- The life of your demo account: The training period needed to become a good trader varies from person to person and it is therefore preferable to open an unlimited demo account.
- Live quotes: This may seem obvious, but some platforms do not offer live quotes on their demo account. It is therefore essential to find out about this beforehand.
- Market analysis: The access from the platform to the different market analysis and technical signals will be very useful when you trade in real mode. They should therefore be included in the demo account so that you can test their relevance.
The different advantages of a demo account for online trading:
A free demo account offered by a broker or a trading platform has certain advantages that we propose to discover here in detail. We will then come back to the limitations of this tool and give you our objective opinion on its usefulness.
As far as the advantages of such a demo account are concerned, we can first of all underline that it allows to visualize the way prices of an asset evolve and that it allows of course to learn to recognize the risks and in particular the risk related to the leverage effect. Indeed, leverage is a tool that many new online traders are eager to use but which fundamentally changes the level of risk involved. However, it is possible to choose the level of leverage you want to use in your strategies and assets. Using a demo account allows you to test different levels of leverage in order to be able to choose the most suitable leverage later on. A demo account will indeed allow you to understand that leverage can be both useful and dangerous.
Another undeniable advantage of the online demo account is that it allows you to understand how the proposed trading platform works and what trading conditions are offered by your broker. By using your demo account you will learn how to use different orders to place, how to customize the charts by displaying different indicators or using different time periods. They allow you to test the different technical or fundamental analysis tools or to test specific functions such as social trading or how to best manage different lot sizes. Of course, it is sometimes possible to use the demo accounts of different brokers before choosing the broker whose platform will convince you the most.
Finally, and this is of course the main advantage of an online demo account, it allows you to test different trading strategies. Indeed, the trading platforms offered by CFD brokers offer different ways of approaching the market and some even include tools dedicated to the strategy. With your demo account, you will be able to test these tools as well as test your own strategies in real market conditions. You will be able to try out different approaches in order to evaluate which one seems to be the most suitable for the type of asset you are investing in and thus be ready when you start trading by yourself.
What are the limitations and drawbacks of a free demo account?
As we have just seen, a demo account has many advantages but it also has its limits which we propose to discover now in more details. These limitations are as follows.
- First of all, with a demo account, the stress of real trading is absent. This means that if you manage to implement a winning strategy using the demo account, it is possible that the added stress and fear that comes with trading in real mode will defeat your strategy. Emotions are an integral part of the data that influences traders' decision making. Unfortunately, these emotions are rarely the same with a free demo account even though everything is done to make you feel like a real trader. This is why it is advisable to start with small amounts of money when entering the real trading mode, so that the tension level is not too high at the beginning.
- Another defect of free demo accounts is that they can lead to a too important confidence and thus push you to take bad habits. Indeed, on a demo account, as we have just seen, the real risk is absent. This pushes us to dare more than in a real trading mode. However, if luck is on our side and the tested strategies, although very daring, work, we will tend to recreate them more easily in real mode without taking into account the possibilities of losing.
- The final disadvantage of a free demo account is that your experience will in no way reflect how you might react to risking your own money. It is indeed easier to leave a position open with a demo account despite a hesitant trend or a period of market hesitation than when you commit your own capital. However, knowing how to cut your losses at the right time is essential to any good online investment strategy.
Our objective opinion on free demo accounts:
In conclusion of this article, our opinion on using a free demo account for your online trading remains relatively positive.
In fact, using such an account allows you to practice without worrying about getting into real trading without understanding the ins and outs of it. In fact, we would strongly advise anyone who wants to start trading CFDs to use a practice account to familiarize themselves with the trading platform that they will be using in the future.
But as we said above, these demo accounts also have their limits and you shouldn't go into real mode without realizing that things will be different in that your emotions will likely change your behavior in the market.
In conclusion, a demo account is very useful for all traders who want to test their knowledge and strategies before starting trading.