Demo accounts are sometimes looked at as vehicles for new traders to try their hands on Forex trading, or trading in general for that matter. There are, however, tons of other applications that can help traders succeed in the market.
1. Learn to Trade
This is the most common but sometimes underused way to get the most out of a FX trading demo account. New traders often think that after a week of trading on a practice account they are ready for a live account. Most of the times this simply is not the case. I usually advise beginners to practice for at least 4-6 months on a demo account while they learn to trade forex. Less than that there is no possible way that they can understand half of what happens in the market or what affects it. Additionally, this is a great supplemental way of learning forex trading when it is used together with online learning or books or through a mentor.
2. Test out a New Broker
What better way to test a new broker than by practicing on their web based system. I know that a lot of times there is a learning curve for adjusting to a new system and most brokers offer free demo trials to see if you like the functionality of the site. Unfamiliarity sometimes can lead to big losses by choosing wrong tools or selecting wrong buttons while in a trade.
Have a trading system that you think is a world beater? Test it on a free demo account to see if it is ready for the prime time. I usually like to test my new systems for around 3 months. I think that is about the middle of the road. Some traders like to test a trading system for more time some others for less. If it is not working you make adjustments then restart the test. And if it works, take it to a live account!
4. Test Some More
I like to test on a demo account while I am trading on a live account. This way you can still be making money while testing your next best method. I have found this to be a very successful approach. Once the new system is completely fine-tuned from testing, I used it together with the old one!
Some of you may have already been using these approaches in your currency trading plan. For those who have not I think it is at least worth trying as it has worked for me and numerous others traders that I advise.
Authored by Jason Daily
Jason Daily is an experienced Forex trader and contributor to the forex education site TradeForex.com. He has taught many on the subject of currency trading online and in person.