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Forex trading for beginners: what is the difference between demo and real trading?

By Edited Apr 5, 2016 0 0

In the world of finance and investment, trading in its various forms gets plenty of publicity. It's sometimes hard though to get really solid information about forex trading for beginners. I found this especially when I was just starting out demo trading and thinking hard about making the move to live trading with real money based on my success so far with virtual money. I didn't find much information out there though to help me along, to know what to expect when I made the switch, and that's why I thought I'd put fingers to keyboard and get something together for others in the same position I was in – after all there's nothing quite as scary and exciting as forex trading for beginners.

Forex trading for beginners: Demo trading

Demo trading is simply a must for people just starting out trading currency markets. It's an important part of learning how trades are placed, how to read charts (if that's what you're into), and how all you've read and learned in theory comes together in practice. Demo trading is the time for you to experiment freely with trades, alert setups, stop losses and entry triggers – and if you don't know what those things are, be patient! Forex trading for beginners should always start with demo trading, it allows the new trader to make monumental mistakes without financial pain.

Forex (38147)

Try different brokers and different trading platforms to see what works for you. Some brokers offer unlimited demo trading accounts, some limit the demo accounts to a set time, and many brokers use different trading platforms. Forex trading for beginners is the same as anything – try before you buy, and if you don't like what you have tried, go somewhere else! There is a lot of competition out there in the industry so feel like you're the one in control – because you are! When I started out forex trading I had a whole bunch of demo accounts with different brokers, using different trading platforms (software basically), and still maintain demo accounts to this day – it's great to experiment!

Forex trading for beginners: Real trading

Now we're talking about trading with real, actual money that you have deposited into a trading account that you have set up with a broker you have carefully selected. If you're just starting out, you're unlikely to have tens of thousands of dollars in a trading account – start small, and see how the broker goes, see how your trading progresses. When you're selecting a forex broker it's always a good idea to go with a firm that is on the larger end of the scale, and at least a little bit reputable. There are a fair few watchdog type websites around like forexpeacearmy which do some good work in keeping the less scrupulous brokers on their toes. So do your homework, and before you go depositing all your trading funds into an account with a broker you've just opened an account with, be careful, try a test withdrawal from your account and see how the process works, and how long it takes.

Forex trading for beginners: What is the difference between demo and real trading?

It all depends on the broker you have selected. Some traders start out funding multiple accounts with different brokers (minimum amounts only) until they find a broker that performs to a level they are happy with. That's a good way to go until you've figured out exactly what you are doing. In the meantime you need to know exactly what the difference is between demo and real trading on forex markets.

1. Forex trading for beginners: Simulated feeds explained

A lot of demo trading accounts use simulated feeds for the price displays on either the charting platform or the quoteboards. This depends very much on the broker you're trading with, but be careful of this. The whole point of trading a demo account is to trade in conditions which are as close as possible to trading with real money – and using a simulated feed just doesn't cut it in my opinion. To get a trading experience which is really going to benefit you, trade a demo account with a live price feed.

Dollar Fist (38148)

2. Forex trading for beginners: So stressed all of a sudden!

It is completely normal for the beginner forex trader to experience a tightness in the chest, a cold sweat and a rush of adrenalin accompanied by a strange anxiety – and it's even more so when you start trading with a real live account. The only way to overcome this is by practice – trade regularly and sick to your trading plan, which you should have written in semi permanent marker on the wall above your monitor. Remember to breathe, and don't make emotional decisions in your trading – it is a mechanical process, so act like a cog in a machine and hit the button when a trade presents itself, but remain calm so you don't see trades that aren't really there.

3. Forex trading for beginners: What is the 'spread' and slippage?

This is a topic that I didn't understand fully when I started out trading forex. You may or may not know that every forex broker I have ever heard of does not charge a commission on the trades you place through them. The way they make their money is by adding a few points (or pips – or units of value) onto the entry price and the exit price. The pay one price, and charge you another, and then pocket the difference – that's how brokers maker their money. Slippage isn't really an issue in forex trading, as opposed to E-minis or trading stocks. This is because the sheer volume of trades in the forex market ensures that there is someone somewhere in the world ready to execute your order whenever you make it.

Forex trading for beginners is not really that complicated, but it is important to know the difference between demo and real trading. It's not just the broker that has differences either, it's you too. Your emotional and physiological state will affect the way you trade, and it's all part of the process to learn how to make it happen. Happy trading, and above all enjoy!



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