If you’re new to Forex the best way to begin is by opening a demo account. It’s free and you can start placing trades right way with virtual money. After a few days or weeks of trading on your demo account, you might ask yourself “is it time to switch to a live account?” While there is no right or wrong answer, we’ve outlined some tips you should consider before you begin trading with real money.
During your Forex demo account trading, make sure you master the following things before you proceed with a live account:
- Learn all features of the trading platform. Most brokers offer the MT4 or MT5 platform which has numerous features, such as: technical indicators, expert advisors, different chart types, order types and other useful tools that you will need to test and understand very well in order to use them to your advantage.
- Risk management. Trading Forex can be risky, that’s why it’s important to have a strong risk management strategy that will protect your investments. One factor to consider is what leverage you will use when trading. While some brokers offer up to 1:200 leverage or more, you might consider using lower leverage level. Also you need to choose which risk reward ratio you will use and apply it to all your trades. Ideally, the reward size should be 3 times that of the risk side, but a 2:1 ratio is also good. Don’t forget to place Stop loss and Take profit orders and not to move your orders after they’re placed.
- Choose which Forex pairs you will trade. Forex brokers offer many currency pairs to their clients, as well as other instruments such as, gold, oil, CFDs on shares, indices, etc. While trading on your demo, you should pick 1-3 currency pairs that you want to trade and focus on them. If you don’t have much time to trade Forex, it’s best to trade only one or two currency pairs and focus only on them.
- Develop a winning strategy. The most important part of being a successful trader is that you have to have a winning strategy so that you can keep making profits in the long term. That means that you have to analyze the market and be able to spot market opportunities. Make sure you follow an economic calendar so you know all macro events that will be released soon. Also, use a technical analysis and indicators in order to analyze the market. Once you’ve spotted a good market opportunity, you need to pick the right time to enter and exit the market.
Although Demo Accounts can teach you many things, there are a few things you should be careful about:
- Demos are funded with $50,000. While it may seem fun to trade with $50,000, the reality is that the majority of traders will never open a live account with so much money. You should be careful not to develop the detrimental habit of spending more than you can afford. It’s even a good idea to request from your broker to fund your practice account with the amount that you really plan to invest in a live account. This is a good way to protect yourself against excessive risks and to develop the right risk-reward ratio for you.
- You need to control your emotions. The emotions associated with live trading are real and it is very hard to contain them. While you’re trading on your demo, you should identify the triggers that make you take excessive risks and make losing trades. Write down all weaknesses that you discover in your behavior and try to overcome them again and again until you are ready to accept the challenge of live account trading. This is the best time to work on improving qualities like resilience and discipline while trying to control feelings like fear, anger and greed.
Moving to a live account does not necessarily mean that you will stop using your Demo account. You can continue to use it, in order to test and develop winning trading strategies. Going back to our question: “How much time should you spend on a Demo account before going live?” – some experienced traders suggest at least one month or more is needed to prepare yourself for live trading. Once you’re ready to open a live account, make sure you select the right account type, according to your deposit requirement, leverage and lot sizes you plan to use as well as spreads and conditions.
This post was provided by LiteForex, a leading Forex and CFD Broker.