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Forex Demo

By: EconomyWatch Date: 23 July 2009

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

A forex demo is a practice account that allows investors to use “paper credits” instead of real money to trade on the forex market. A forex demo account is an instrument to introduce a novice trader to forex or help a veteran to sharpen his or her trading strategies.

Dummy accounts give traders a platform to develop their unique trading strategy.
A good forex demo account takes changes in the spread into account to indicate positions for a trader.
A forex demo calculates the variables and advises on entry-exit strategies. Most forex demo accounts provide “live” results and trading guides that have proven track records.

A forex demo account helps traders learn the following aspects of trading:

Leverage: Forex demo accounts allow traders to practice to understand how leverage works, by placing dummy orders in various ratios.
Strategy: A trader can set the online trading platform on the demo account at a desired order limit. This would help formulate strategies and close the orders at a profit level.
Profits in “rising” and “falling” markets: A forex demo account helps traders to learn to earn by taking a 'long' or 'short' position, irrespective of market conditions.
Around-the-clock trading: Forex trading is open 24 hours. A demo account helps a beginner to practice trading in different time zones.
News, charts and analysis reports: Most forex demo accounts offer news, charts and reports. Traders can learn to use these tools before trading live.

A forex demo account has its downsides:

Trading in currencies on a forex demo account does not give a complete experience, as it has no risk attached to it. The emotional effects of trading on a demo account are different from the impact of the same in real trading.
Demo trading is unable to bring the discipline required in live trading. A trader has to set his financial limits to avoid large losses in the real market. The abundant use of virtual currency on a forex demo creates a false psychological setup.

Brokers allow potential customers to download a free forex demo account, which they can use to practice with demo currencies.