When most newbies cross over from demo to live, they usually believe that their demo trading results can be easily replicated on a real account. Because of that, some are left very frustrated when they realize that this isn’t always the case. Beginner forex traders are often encouraged to open a demo account first before risking real money on a live account. This way, they can put their newly learned skills to the test. However, if you have dabbled with a demo account for some time, how can you tell if you are ready to open a live one?
As a common way of encouraging forex traders to use their deal execution services and deposit funds with them to use as trading account margin, most online forex brokers will offer a free forex practice account to potential or existing clients. Generally known as a forex demo account, such accounts allow a trader to experience a hands-on demonstration of what it feels like to trade currency pairs in the forex market with that broker without putting any real money at risk.
Even if you tried to treat your demo account as a real one, the truth is that there is no real monetary risk on demo. You can suffer a few losses here and there but, at the back of your mind, you know that you can have your demo account refilled with fake cash any time. If you make a ton of mistakes on a demo, you can be comforted by the fact that you can start over easily and this takes a lot of pressure off your shoulders. In contrast, finding yourself in a slump while trading real money can hurt your trading confidence and can cloud your trading decisions later on.
Almost every trader immediately notices the difference in their trading performance on a real account versus a demo account like there’s something almost magical that makes it easier to make money on the demo account. Indeed, it is common to suffer more heavy drawdowns when finally trading on the real. Some even believe that brokers can manipulate the platforms to give different performances on real money accounts. However, the issue comes more from psychological reasons, as the mind plays emotional tricks when we are operating with real money.
The first and major sticking point is the element of emotions when it comes to demo vs live trading. A person’s emotions greatly impact their decision-making ability when real money is on the line. It is difficult to gain discipline from demo trading because when you are in a losing trade you can always get out the trade or just take the hit. After a couple of losses just hit the account refresh button and your account tops back up. You could blow out many accounts and have one account with huge profit gains, but that does not mean that you will be able to repeat the one big winning account again.
