Perhaps you’ve read a few books or online tutorials about trading, and feel like you’re ready to start trading Forex or any other financial security. To do so would be making a mistake. Whether you’re trading the Foreign Exchange, Commodities, or Equities, it’s always better to find your bearings using a demo account first. Below, we’ve outlined the reasons why:
Familiarity with your platform
The foremost reason why you should start your trading journey with a demo account: get to know the platform you are going to be using. Test every function that your platform has, and intimately know where every button and display is on your user interface. Whether it’s PU Prime’s Trading App or the highly popular Meta Trader 4, getting familiar with a platform ensures that you can take full advantage of all its functions – whether it’s setting up an Expert Advisor or adding the indicators that you want to a chart.
Learning and practice are two different things
You might have read up on the different order types and what they do, but setting a trailing stop order and seeing it in action will provide an understanding no book can do. Putting into practice the things you have learnt can work wonders in building the confidence to make trades. Confidence is key – Forex trading entails sticking to a plan, and having the confidence to follow through with rational decisions is important. For example, coming in from the low of a string of losing trades, one might be tempted to deviate from their trading plan. However, the market doesn’t follow anyone’s mood, it’s no place for emotional trading.
Building the right mindset
To get the full benefits of your time spent on a demo account, it’s important to approach it as if you were trading with actual capital. While you might not be dealing with real money, try to get emotionally invested in your demo account. Learn to be disciplined in trading in the face of those emotions and avoid things like over-trading, then carry that same mindset into your live account.
Making trades that you would with a non-demo account will also help you figure out the kind of trader you are, the kind of strategy you subsequently would want to employ. Do you prefer the short-term, hands-on monitoring required of day trading? Or are you looking for long-term positions that might make you a larger profit? Practising with a demo account will help you decide on the amount of resources – time, capital, and attention – that you will want to put into trading.
Even after you start trading live…
A demo account can help with testing a new trading strategy. While making a profit in a demo account might not necessarily translate to winning trades with real money, knowing that a strategy isn’t going to work out is invaluable when it comes to making decisions in your live account.