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Most foreign exchange traders these days get their start by practicing on a broker’s demo platform first. But is it really worth your time to do that?
Why not just dive in and learn in the real world, using your own money on the actual forex market?
In this post, we discuss why you probably shouldn’t do that.
A Tale of Two Traders
Forex traders everywhere love to debate the pros and cons of using demo platforms for getting started with forex trading.
For instance, let’s peek in on two friends having a beer after work.
One, grinning broadly, announces that he has just won big on his very first forex trade.
His friend looks sidelong in his direction. “Seriously?” she asks. “On the actual market?” Her friend smirks and nods.
Shaking her head, “But you’re just getting started!” she exclaims. “Don’t you think you should practice on a demo platform for a while first? Like I told you? You’re taking a pretty big risk with your money.”
“Aw, c’mon,” says the other trader, looking a little uncomfortable. He tilts his head toward the pool tables, and, sliding off his bar stool says, “How about a quick game?”
Setting her beer down on the counter, the more experienced trader nods and settles up with the bartender.
Then she adds, “It can take a while to learn the ins and outs of the forex market.” She goes on, chuckling. “I lost big my first few times out. Of course, that was on a demo platform. I sure am glad it was there for me to learn on.”
Demo Platforms Teach Traders How the Markets Work
Your broker’s demo platform gives you a way to learn about the markets without losing your own money in the process. Because, let’s face it, the forex markets are tricky. They’re extremely volatile and complex. When you’re a beginner, you have a lot to learn.
But by regularly practicing with a demo account, you won’t be risking actual cash while you find out how prices move on the foreign exchange markets.
Instead, you’ll be developing an understanding of how the different instruments are correlated. Importantly, you will also start to recognize the ways in which news releases affect currency prices.
However, it will be important to address your demo trades as if they were real. Take the learning process seriously and devote lots of time to it. That’s the only way to get good at making forex trades.
Practice Using the Technical Tools on Your Broker’s Demo Platform
In short, as our more cautious trader pointed out above, there is a lot to know about the forex markets. What’s more, there is a lot to learn, as well, about the tools that can help you to be successful when you’re trading foreign currencies.
For example, you’ll want to spend lots of time studying the charts while you’re practicing on your broker’s demo platform. You will need to know them inside and out before you take your trading live.
You need to learn about the basic elements of technical analysis, too. For instance, on your broker’s demo platform you will learn about support and resistance, trend lines, all sorts of indicators, Fibonacci analysis, and more.
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Find a Good Balance Between Risk and Caution
After spending a while on your broker’s demo platform, observing how the markets move, you will have learned a lot about the technical side of things. In the process, you will have developed a few ideas of your own and begun to settle into a trading style.
You will have become acquainted with other traders, too, experts who have studied the forex market for years. If you’re smart, you will be emulating their movements and learning all you can from them.
And when you’re ready to trade on the actual markets, you’ll know.
Now, about our two traders from a few paragraphs back. We don’t know who won at the pool table. But which of those two traders do you think has a better chance of being the more successful forex trader in the long run?
Probably the trader who takes the time to learn all about the forex market by way of a demo platform, right? Be like that trader.