It is well known that around 85% of retail Foreign exchange traders lose money. But why? This is partly due to the fact that many new traders are woefully inexperienced meaning they have no realistic chance of succeeding. It is understandable that many traders want to jump right into the action and attempt to make money by trading the Foreign exchange markets, however it is advisable that traders don’t immediately jump in over their heads. Thankfully, many Forex brokerages offer potential customers the chance to try out their platform via a demo account. We are going to look at how traders can take advantage of this and learn to trade the markets without risking any of their own money.

Forex Demo Accounts

The vast majority of retail Foreign exchange brokerages offer potential clients the chance to try out their platform for free with no obligation. These demo accounts come loaded with a play balance and give traders the opportunity to try their hand at trading with the brokerage. The reason why brokerages offer demo accounts is to entice potential customers to deposit real money with them and demo accounts are a very powerful marketing tool.

But this doesn’t mean that you can’t use these demo accounts to your own advantage. While the majority of demo accounts are time restricted, meaning you can only use the demo platform for a fixed period of time typically 30 days. Operating servers costs the brokerage money and many brokers are unwilling to shell out on maintaining demo accounts that have no prospect of ever becoming real accounts. However if you search around you will find a number of brokerages offering unlimited demo accounts. For instance EU regulated AAAFx offer an unrestricted demo account providing customers log on at least once every two weeks. Those looking for more details regarding AAAFx, check out my review here. I also know of a number of other brokerages offering unrestricted demo accounts, so it’s worth going out and doing your own research!

Using Demo Accounts To Your Advantage

I would recommend that those new Foreign exchange trading open up a demo account and try their hands at trading for a while. It is often suggested that new traders should practice using a demo account for at least six months. In this time period new traders should also be consuming as much information as they can, in order to try and get to grips with the complex world of Foreign exchange trading. If after six months you are performing consistently with a demo account, it may be time to make the move to a real money account. Those who are unable to perform consistently after six months should either give it some more time or seriously consider whether Forex is really for them.

Demo accounts can give you a chance to try out trading with no risk and should be used by everyone who is seriously considering trading for real. You can try out different trading strategies or alternatively develop your own, and determine whether Foreign exchange trading is for you. If you do use a demo account to try your hand at Foreign exchange trading, I recommend you take the experience very seriously and act as if you’re trading for real. It is only then can the results of your demo experiment can be conclusive as to whether you have any future in the world of Forex trading.

Testing Expert Advisors (EA’s) and Signal Services Using Demo Accounts

Demo accounts can also be used to test Expert Advisors and signal services. Expert Advisors aka EA’s are the most popular way to automatically trade the Foreign exchange market. EA’s are supported by both MetaTrader 4 & 5, though a MetaTrader 4 EA won’t work on MetaTrader 5 and vice versa. These Expert Advisors are essentially programs that automatically trade the markets based on their programming. You will find many people flogging the latest and greatest EA’s, though you will likely find that the majority of Expert Advisors won’t perform as well as advertised. Why risk money on an unknown quantity? The simple answer is that you don’t have too; you can either backtest the EA or trial it via a demo account.

I personally prefer to test a new Expert Advisor using a demo account rather than with MetaTrader’s strategy tester. This is due to the fact that many Expert Advisors have been optimised so that they perform very impressively in back tests. While it is possible that they EA may keep on performing it is often the case that it fails to replicate it’s impressive past performance. This is why testing an Expert Advisor using a demo account is very advantageous, as it allows you to see how the EA is performing right now! That’s why I suggest traders who use EA’s open a demo account so they continually test and trial different advisors.

Signal services operate in a slightly different way and generally charge a trader to receive live trading signals which they can then use in their own accounts. Again many of these signal services make some very impressive claims regarding the kind of returns a trader can make using such a service. But as with EA’s many signal services don’t perform as well as the advertisements would make you believe. Thankfully, a number of signal services allow traders to take up a free trial normally lasting a couple of weeks. A great way to test whether the signal service lives up to the hype without putting any cash on the line is to use a demo account. That way you can evaluate the signal services and understand their trading strategy without risking a penny. If after the trial period, you are satisfied with the quality of the signals then you may want to subscribe to the service.

Concluding Thoughts

Demo accounts can be a vital tool in any trader’s arsenal. Newcomers can learn to trade and see whether they are cut out to trade Forex for real, without putting any cash on the line. Forex is very risky and it is important that new traders gain a proper education before they dive into trading. More experienced traders can use demo accounts to try out new trading strategies, Expert Advisors and signal providers without risking their capital. This means that even more experienced traders could benefit from using an unrestricted demo account alongside their real money account.