So you are given the latest Lamborghini as a gift on your birthday. But you have never driven a vehicle before. What’s going to happen if you hit the road with the Lambo with no experience on how to drive?
You are most likely going to crash the car and maybe even get yourself injured.
You can relate this same experience with trading. Most beginner traders head straight to trading live accounts with no prior knowledge about how to trade Forex. As you get started with your trading career, you should start with a demo account. It is important to also note when to switch from demo to live trading.
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Demo Trading:
A demo account provides traders with a realistic trading experience without risking real money. If you’re looking for a reliable broker to trade with, you can register and open an account with Fpmarkets. You will receive virtual money which you can use to practice your trading skills without having to expose your real money. Every successful trader once traded a demo account to prevent unnecessary risk during their beginning phase.
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Live Trading:
Live account or live trading is pretty much same as demo trading however the only difference would be the use of real money and not virtual money.
Before switching from demo to live trading, ensure that;
1. You have back-tested your trading strategy
You are expected to learn and practice a trading system on your demo account. Keep a record of the trades you take on your demo account. If your trading strategy is profitable, that’s a sign that you are ready to go live. To learn strategies that you can use to trade profitably, join the Forexlyfe Academy today for insights into profitable trading.
2. You have a trading plan
If you traded your demo account with a clear trading plan which you used over a period of time to get consistent results, then you can get ready to use real money.
3. You have practiced good risk management
Risk management is one of the most important factors of trading. Knowing how to measure your risk in terms of risk-to-reward ratio, and position size calculation are key determinant factors to consider before you switch from demo to live trading.
4. You have good trading psychology
Your ability to manage winning and losing streaks is another major factor to consider. How do you react when losses come? Do you revenge trade, get angry, and lose your cool? If you are struggling with keeping your emotions in check, it may likely have a negative impact during live trading.
5. You are comfortable with your broker
You have opened and closed trades on the broker’s platform. You are aware of their charges like their commissions and spreads. You are comfortable with the leverage they offer, their customer service is reachable.
As much as it is advisable to start with a demo account as a trader to prevent/minimize risk, one cannot get the full trading experience trading a demo account. Knowing when to switch from demo to live is also crucial, as your psychology has to be in place. Lots of beginner traders are not willing to lose real money and hence become stuck to demo trading.
Here are some limitations to trading a demo account
- Emotionless trading
- Slippage and Execution speed
- Psychology impact
- Limited real-time data
- Unrealistic market conditions
Are you ready to switch from trading demo to live trading? Let me know in the comment section.
If you have questions or further enquiries, please contact me here.
