Forex demo accounts are very popular and certainly they have their advantages. Just about all brokers offer them these days and of course it is great to be able to test out their platform. But should you be using the forex demo account beyond that? Have you ever asked yourself what is in it for the broker?
Forex brokers offer demo services for two main reasons. The first is that everybody else is doing it so they pretty much have to, or a lot of customers will go elsewhere. However, the demo account does also have some benefits for the broker.
We love familiarity. So as soon as we sign up with a broker and start to use their demo account, we become attached to it at some level. When we have gotten to know their trading platform, it feels safer than any alternative. Plus we have invested time in getting to know it, and we do not want that time to have been wasted.
Now, many new forex traders will sign up with pretty much the first broker they come across, thinking there is no need to be concerned with a lot of research to find the best forex broker right now because they are going to start out in demo anyway. No risk, right?
But what they fail to take into account is that they are investing their time, and for all of the reasons given above, they will not want to switch brokers later unless there is a very good reason.
This means that a broker can sometimes hook in new clients by providing a very easy to use demo account and a cool looking trading platform, while being uncompetitive in other ways. While this cannot exactly be called a scam, it is important to take account of this factor when choosing a broker.
The second point to watch out for when you are operating a forex demo account is the risk of becoming too comfortable. In demo it is easy to try out a lot of different systems, use maximum leverage, maybe even trade on intuition, and perhaps make money, at least for a while.
It is easy to become over confident and think that we are going to make just as money money in the real market, but sadly, it does not work out that way.
The truth is that even if we are scrupulous in following a system in demo mode, it just does not feel the same as trading for real. The stress is not the same. Trading a mini lot for real is far more stressful than trading a standard lot in demo. As soon as stress enters the equation, it is much harder to make the right decisions.
This means that it is usually best to start small when you switch from demo to real trading. Take a position that is one tenth of the position that you have been trading in demo, or even less. This will lessen the risk of having your account balance wiped out in the first few days just because forex demo gave you a false sense of security.
