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Forex Demo Account

By: EconomyWatch Date: 23 July 2009

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A forex demo account is a trading account, especially for beginners to learn on how to trade currencies in a simulated environment. It is a dummy account which allows a trader to enter and exit positions equal to the size of the standard lot of 100,000 units without investing in real currencies.

Boris Schlossberg, the director of currency research at GFT Forex, stated, “Although demo trading will not guarantee you profits in real life, almost all traders agree that if you cannot first achieve success on a demo, you are almost certain to fail in your live account.”

How to get and use a Forex Demo Account

Traders must follow the below-mentioned steps to get a forex demo account:

Step 1: There are various forex brokers on the Internet who offer the facility of a forex demo account. A trader should search for brokers who provide this facility and evaluate their offers.

Step 2: Set up a demo account with a broker who provides charts and indicators and other trading strategies. On registering a free dummy account, one also gets a $5 top-up in real money. Forex traders can trade on the dummy account until it starts making a constant profit.

Step 3: Once a trader has had sufficient practice, he or she may trade with the bonus on a real account. A trader on a demo account must try to make more winning trades. This needs to be followed in the “real” market as well.

Forex Demo Account: What to practice

Traders should never engage in live trading unless they have practiced a minimum of 20 trades on a forex demo account. The most important things to practice on a demo account are:

How to place a limit order.
How to set a stop.
How to set a limit and a stop at the time of entry.
Whether the spreads are on the fixed or variable platform.
The lot size that a trader can manage i.e.1000, 5000, 10000 or 100000 units.
How to mix and match lot sizes
How to trade with constant returns.

In addition, forex demo accounts help experienced traders to gauge their ability to take risk. Many successful traders set and practice their trading strategies on a demo before executing with real money.