Demo account: simulator for a trader
Almost all more or less well-known forex brokers provide traders with an opportunity to use a demo account, most often free with an unlimited duration. Working on a demo account for novice traders is an obligatory step in preparing for real trading (how to start trading Forex). Advanced traders can work out new trading strategies on a demo account.
Why should you trade on a demo account
A novice trader is likely to register on one of the most popular trading platforms, where there are always a demo service. But if there is a problem of choice, then you should choose the licensed brokerage companies that have been working in the market for a long period of time and with good reviews included in various ratings – there are a lot of them on the Internet. You should pay attention to where exactly the company has been licensed. If there are mostly good reviews about the broker, but it has been registered offshore, you should once again consider the advisability of trading with such a broker. Of course, if the broker offers to replenish account with a substantial amount in order to use the demo mode, then it is hardly necessary to work with it.
In addition to the demo account, large brokers also offer training materials from textbooks to webinars (training in Forex trading). A demo account is required so that the gained knowledge is immediately put into practice, but without the risk of losing money. There should be only one difference between a demo service and a real trading platform – trading in the demo mode is performed using conventional signs, and not real money or assets. Everything else – price dynamics, trading tools, order execution, market situations should be the same, trading conditions are as close as possible to the «combat» ones.
Each broker offers its own trading conditions, even small differences in trading conditions can seriously affect the result of trading, and this is another reason to practice in demo mode when developing a new platform. Even if it is supposed to trade on the same assets. A demo account should always be ready to trade, so that you can quickly work out the procedure for a particular situation, for example, in case of a sharp drop in the exchange rate.
Trading on a demo account must yield a stable «demo profit» in order to start working on a real account. It is not known exactly how much time this will take; they mention different timeframes – from one day to thousands of hours. If the broker does not limit the work on a demo account, then the trader should determine the training time. But the demo account duration may be limited by the broker. This can encourage a trader to study trading more intently. But it is better to learn about such restrictions in advance, and if time is short, it is better to start trading on a platform where there are no restrictions on the demo account duration. A demo account presents the following features for a novice trader:
- to check whether trading is really a good choice of force application;
- to understand how the trading platform functions;
- to master the trading basics and learn not to make too gross mistakes;
- to work out the first steps in trading without spending real money;
- to study and develop the first trading strategy (best Forex strategies).
It is important that a demo mode does not reflect in full the emotional burden on the trader during significant losses or a sharp increase in profits, and this is one of the most significant trading elements. It is a mistake to believe that you can learn to the full extent to trade only on a demo account. This mode allows you to only master the basic skills of trading. Therefore, it makes no sense to linger on it for too long. An experienced trader can do the following on a demo account:
- to test his/her actions in the new market situation;
- to master a new strategy (simple Forex strategies);
- to try trading the new assets;
- yo get acquainted with the new platform features.
Thus, the broker’s demo mode can be even more useful for experienced traders than for beginners.
Platforms with a demo mode
Let’s take a closer look at some of the most popular platforms that enable you to trade on a demo account.
Forex4you is a popular broker regulated by the Financial Services Commission (BVI FSC, British Virgin Islands). Users are invited to trade on the MT4 and Forex4you Terminal platforms. Forex4you traders can trade in currency pairs, goods, stocks, indices, cryptocurrencies and so on. A distinctive feature of Forex4you is the social network Share4you, where you can copy transactions. The broker also developed MarketPlace Forex4you that is special software that accumulates offers from liquidity providers, selects the optimum Bid/Ask prices, which can facilitate the trader work.
The broker offers four types of accounts, including a demo account and you should also note the cent account, where all the transactions are reduced by a hundred times, which prevents too large losses, so the account can be considered a training one, like a demo account. Note that not only this broker has such an account, and if it is offered, it will be useful to register it. Well, you can open a Forex4you demo account for free, the conditional amount for trading is up to USD 100 thousand, the leverage level is 1 to 500.
FXClub (fig. 1) is one of the most famous brokers. The company is regulated by the Financial Market Participants Regulatory Commission (FMPRC) and the International Finance Commission of Saint Vincent and the Grenadines. It provides traders with Libertex, MetaTrader 4 and 5 platforms for work, including mobile versions and Rumus. Here you can trade currencies, CFD, stocks, indices, contracts for goods and raw materials, precious metals, cryptocurrencies – more than 70 assets in total. It doesn’t work with binary options (demo account of binary options). The broker offers five statuses for traders – Silver, Gold, Platinum, Diamond, Exclusive, depending on the amount credited to the account, from USD 500 to USD 500 thousand and above.
Functionality is expanded depending on the status. But all statuses have free basic training, compensation for transfer fees and a 24-hour support service. The broker offers working on a demo account; for this purpose the broker credits 5,000 demodollars to the demo account. A trader can work by himself/herself, connect advisor programs, trading robots. To switch to trading in real money, you should re-register. In the Forex club training system there are courses for beginners, for those who want to improve their professional level, group or in an individual mode.
eToro is a broker that has recently entered the world market, but has already become one of the popular Forex brokers. Companies under eToro brand are managed by offices in the UK, Australia and there is a company responsible for operations in Europe outside the UK. The company positions itself as a social platform for traders, which provides online transactions with currencies, commodities, stocks and indices. The company presents its own trading web platform, the distinctive feature of which is the well-developed Copy Trader function, otherwise the platform does not surpass other trading services. The broker also offers a mobile trading service for devices with Android and iOS.
The company offers a perpetual demo account received by the trader after registering an account. When registering, the user is given a choice: start trading immediately on a real account or open a training trading account. 100 thousand conditional dollars are credited to the demo account. eToro offers standard and professional trading accounts for already experienced traders. To open a real account, eToro requires a minimum deposit of USD 200 to 500. But the specific amount depends on the country where the customer account is registered in.
Plus500 9 (fig. 2) is a fairly well-known British broker, which is regulated by the UK financial regulator FCA, similar regulators in Cyprus, Australia and Israel. The broker offers trading services of online trading on several assets, but specializes mainly in trading under contracts for difference (CFD), currency, ETF, cryptocurrencies, options and so on.
Plus500 offers a simplified proprietary WebTrader trading platform, browser and mobile versions. To start trading, one should enter the username and password. One of the broker features is that it does not allow hedging, automatic data entry, scalping and transactions; Plus500 may consider it to be insider trading and close your account. Plus500 demo account is unlimited, you should register, select a demo account and deposit an amount equivalent to USD 100 on the balance in order to access it.
InstaForex is one of the largest brokers. The company is registered in the offshore zone, and it is not clear what structure regulates it, this must be borne in mind when registering and trading. But this fact does not affect the broker’s popularity. The broker provides an opportunity to trade on Forex, CFD contracts on stocks, CFD contracts on futures and indices, binary options, cryptocurrencies and so on.
The minimum deposit with which you can open an account with the company is USD 1. Trading takes placet on MetaTrader 4 and 5 platforms. The leverage level provided to traders is 1 to 1,000. InstaForex also offers services for copying ForexCopy transactions, investing in PAMM accounts, free currency trading training, daily analytics, partner programs, etc. When registering, InstaForex offers a demo account cabinet where you can select training accounts in MetaTrader 4 format in accordance with your requirements.
Exness is a major broker popular among the CIS traders, licensed by CySEC (Cyprus Securities and Exchange Commission) and FCA (UK Financial Services Authority). It offers trading in currency pairs and CFD futures on the MetaTrader 4 and MetaTrader 5 platforms and their mobile versions. The user receives a demo account immediately after registering a personal account; 10 thousand conditional dollars are credited to it. On the other hand, the broker does not provide training, novice traders are invited to contact the help center, get acquainted with the directory, i.e., the trader should take care of his/her professional growth himself/herself.
Working in a demo mode
Let’s suppose that a new trader decided to try trading on the Grand Capital demo service. On the main page of the website you should go to the «Trade» section and «Demo accounts» (fig.3) subsection.
Then you should select a demo account from three options presented. For example, Standard (fig. 4).
To open an account, you should register a user account (fig. 5).
The following page shows the basic information for a demo account (fig. 6).
An account is created after clicking «OK». On the next page, you can proceed to crediting conditional dollars and go to the web terminal (fig. 7) to test strategies.
When and how to switch to real Forex trading
You should practice trading on a demo account until the profit is stable for a long period of time. We can say that if a trader makes a profit (regardless of the profit size) for two weeks, then you can think about switching to trading on a real account. But even if the broker has no restrictions on the demo account duration, you can not use it for a long time. When a trader «freezes» in a demo mode for a long time, he/she has a condition that is sometimes called the «demo mode user’s syndrome». i.e. a loss of understanding of real risks.
As a result, the trader makes the wrong, most often too high bets in a real account, tries to implement risky strategies, takes hasty and bold decisions that bring stable «demo profit» in the absence of psychological pressure, and loses the deposit. The opposite effect occurs after this – the trader loses confidence, takes too cautious actions, makes decisions with a delay. And all these situations occur as consequences of working too long in a demo mode. It follows that a demo account is required only in order to train to work on a specific trading platform.
When switching from a demo mode to the real world, you should clearly realize that money is money, not conventional digital units. Real money should be saved and increased, and when trading, one should immediately apply all the requirements of money management. You should also remember that in a real account one will have to seriously control his/her emotions, be ready for situations where emotions can result in loss of control and a series of incorrect actions – this demo mode does not teach, and this is the trader’s sole personal responsibility.
One of the mistakes that lead to the loss of a deposit in a real account is using too large leverage level when trading on a demo account. This becomes a habit, a trader starts trading with such a leverage in a real account and loses his/her deposit very quickly. The demo mode also does not teach you to perceive news that can affect the markets quickly and very strongly. This results in the real losses on a real account. If an experienced trader uses a demo account to work out a new strategy, he/she should also not do this for too long. In fact, he/she only should understand the strategy essence and work out the main actions, and then immediately go to the real account.
You should also remember that demo accounts do not provide universal knowledge, they are designed to master the functionality of a particular trading platform. When switching to another platform, you should undergo training on a demo account again, already on a new platform. Thus, before switching from a demo account to a real account, a trader should have a clear idea of what trading is, understand to the full extent the functionality of a trading terminal of a particular broker, and learn basics of trading a specific asset. It is also necessary to have a significant excess of positive transactions over negative ones, to test and work out actions of the strategy with which it enters the market, to know and apply the money management rules. A trader should be ready to control his/her emotions in absolutely any trading situation.