Brokers are in business to make money, not teach beginners.
Top Forex brokers are in business to make money, not teach you how to trade, regardless of what they say.
I do not have any problem with this; it is simply a fact of capitalism and life. Brokers promote demo forex trading as an easy, risk free way to learn forex trading. This is true and it is not true at the same time.
Most new traders start with a demo account to get some hands on practice with forex trading and to learn how to smoothly use the platform and tools available from their broker. This is a good and wise choice. No need to risk real money on careless beginner mistakes.
Secrets that not all forex brokers will not share with you outright.
A majority of brokers are up front, honest, and ethical. However, it is assumed that those new to forex trading understand the outsized risks associated with trading, which come with the potential outsized rewards. Demo forex trading, while valuable in many respects, comes with caveats that every new trader must be aware of.
1. Trading psychology operates differently when you trade with fake money instead of real hard-earned cash.
Most people are more casual and less risk averse with monopoly money than you are with your mortgage or rent money? If you over pay for Park Place, no problem, you still have a roof over your head next month. If you gamble your real money away, it will become a big problem for you and your family.
This is a good analogy to demo trading versus real trading. Most people will act differently and handle risk versus reward differently with play money.
2. Demo accounts are treated more like a video game than an educational device.
It is a lot of fun to go all in on a currency pair and exponentially multiply your demo account.
If you are lucky, great, if not, no problem, reload the demo account and try again.
3. It is easy to fall under the spell of a false sense of ability and the false sense of security that goes with it.
You successfully doubled your money in your demo account last week; you must be an expert now, right? Those fifty trades really prove your inner trading genius. Time to go live and turn your starting account into early retirement, white sand and margaritas included.
4. Leverage is a wonderful servant and a brutal master.
Demo accounts are usually setup similar to mini-accounts with outsized leverage reaching 200:1 or even greater; meaning every dollar of demo money gives you two hundred dollars to trade with. This is wonderful if a currency pair moves in your direction and a half percent currency change in your direction doubles your account size.
Remember, leverage works in both directions and can wipe you out in seconds in a fast trading market.
This is all fun and good with play money. The problem is when you carryover a gambling
mentality into your real money account, which unfortunately too many people do, and quickly crash your account.
Don’t get me wrong, demo accounts are a wonderful tool.
I highly recommend opening and taking advantage of all the features and benefits of a demo forex trading account. Keep in mind the factors above and you will get even more out of it. Good luck with your trading.