Forex trading isn’t as simple as it looks and requires lots of practice, discipline, and patience to be a successful trader. So, if you want to get into this field, many platforms are serving in this regard. But before selecting any platform, it’s vital to learn about all features and concepts. When we talk about features, then demo and live accounts are two terms that are commonly used in forex trading. These two terms are crucial, and you can’t ignore them before starting trading. So, let’s learn how both concepts could help us to be successful traders.
What are demo and live accounts?
Each platform is different and comes with plenty of unique features. But if you study deeply, then demo and live accounts are two common things that we can find on each platform. There could be a slight difference between all platforms, but the actual concept remains the same.
- Demo account: These accounts provide a realistic trading environment. But in these, your money isn’t at stake. In addition, you don’t receive the profit that you made in the demo trades. However, the real aim of these accounts is to teach trading without risking money. So, if you are a beginner, it’s preferred to start from demo accounts and get used to different types of markets and trading strategies.
- Live accounts: On the other hand, live accounts are entirely different where you trade with real money. So, in live versions, you are responsible if you bear any profit or loss during the trade. However, live accounts are suitable for experienced traders who know how to take a calculated risk. Above all, it’s vital to mention that you can revert the transaction in the live trading account.
So, if you are a newbie, then start with the demo accounts. Usually, demo accounts come with $10,000-$15,000 virtual money that you can use to play.
Working on the demo accounts:
Demo accounts are widely spreading in the 21st century. The fundamental aim of demo accounts is to understand the trading features of any platform. Apart from this, it helps new traders to learn the basics of trading without risking actual money. There are many uses of demo trading accounts, and they got hit after wide-spreading personal computers and laptops. Apart from this, many schools use demo accounts to teach stock trading skills to the students. You can even start a demo account before investing in commodities, currencies, and futures trading. Every platform has different patterns and features of the demo accounts, so you will have to search to find the working.
Benefits of demo accounts:
If you are a new trader, then include demo accounts as essential tools in your list. Here are the following benefits of practicing trade in demo accounts:
| It helps to learn trading from ZERO | You get to know a new trading platform |
| You can understand order types | It helps to manage losses in a better way |
| Provide you an ability to test a trading system | Works as a practicing ground without losing money |
What are the critical differences between demo and live accounts?
If you don’t want to surprise yourself, then a demo account could be highly beneficial. But at first, learn key differences between forex and demo accounts. So, here are highlighted points:
Don’t need to operate with real money:
The most significant difference between real and forex accounts is operating money. We mentioned earlier that you don’t need real money to use a demo account. The platform provides $10,000-$15,000 to do the transactions. However, this practice plays a vital role and teaches you the art of taking a calculated risk. But if you do all this practice with real money, then you may regret and lose money.
Working speed:
If you are dealing with a demo account, you don’t need to deal with volume differences, counterparts, and broker liquidity. However, due to these critical differences, the trades on demo accounts function differently and instantly. It means you will click on the trade, and it will instantly happen. But in live versions, you compete with thousands of other traders taking trades to earn money. So, the execution in live trading accounts could be slow because it depends on the market conditions and other factors.
Don’t have liquidity problems:
Earlier, we mentioned that in demo accounts, we take trades with fake money. So, in this way, you don’t have to deal with a liquidity problem. But in a live trading account, if you want to sell something, there should be a potential buyer. Moreover, in demo accounts, traders don’t requote prices, but sometimes liquidity could be tight, and brokers requote prices.
Slippage happens in live account:
By the term slippage, we mean the difference between entry and exit prices. But slippage doesn’t happen in demo accounts, and you enter and exit at the same price. It happens this way because, in demo accounts, traders don’t have anything to lose. But in live accounts, the slippage rate is high, and you must deal with different entry and exit prices. It happens because brokers deal with liquidity, and third-party fulfill your order.
Hidden charges:
Demo accounts help in learning trading but don’t give the true insight of different other factors. The factors could be a deposit, withdrawal, fee, rollover, margin fee, and additional hidden charges. For instance, if you have a portfolio of $10,000, there will be deductions as deposits fee, overnight fees, etc. So, while operating in a demo account, always keep in mind that profit is gross. It means there will be a separate deduction for service charges and other things.
Psychological difference:
“Focus, wisdom, non-attachment, discipline, and patience are the key skills to be a successful trader.”
Apart from the above factors, the psychological difference plays a vital role in the demo and live account. For instance, in demo accounts, you don’t work in an actual environment; that’s why you don’t have to deal with psychological pressure. On the other hand, live accounts are different where you need to show discipline, consistency, and hard work to get positive trading results.
Final verdict:
After having the whole conversation, it’s proved that demo trading accounts provide a risk-free environment to the traders. You don’t have the financial and mental commitment in these accounts, and you make pressure-free decisions. So, demo accounts play a vital role in the trader’s education process due to all these benefits. Above all, professional traders also use demo accounts to check the new systems and features of the trading system. Due to this, millions of new traders can now enter forex trading without losing money at the initial stages.
