Trading Forex – Using Your Demo Account

By Mike P. Kulej

Virtually all Forex brokers provide you with a fantastic training tool, a demo account. It is an account funded with simulated funds, but behaving like a real one. Both prices and transactions are meant to simulate actual trading on given platform. In theory, trades executed in the practice account should have the feel and behavior of factual sell/buy orders.

Opening demo is a very straightforward process. One fills out a form, in electronic form, with a broker of his/her choice, follows simple steps and within few minutes new account is set up and ready to use. That is all there is to it. Depending on broker, there is 50,000 or 100,000 dollars of virtual funds available for trading.

First thing one should to do is to change to amount of money in demo to a level in line with personal means. If you have 5000 or 10,000 dollars available for trading, you should reset the balance in the account to that amount. The purpose of having demo account is to simulate realistic market conditions, not playing fantasy games.

Next thing one should do is to learn the mechanics of the trading platform. There are subtle variations, from broker to broker, in the way trading is conducted. They offer different types of orders. Learn how to properly place market orders, how to set up targets, stop loss and any other variation platform offers. Are contingent orders available? One cancels other(OCO)? How far from market price can you place limit buy/sell order? And so on. These things are a little different from platform to platform and must be learned before trading can start. A lot of money has been lost because of improperly placed orders. You want to practice it in your demo account.

Now the fun part. Find out what analytical capabilities trading software provides. Do you do a lot of technical analysis? Does the platform provide system integration, automated trading, news feed?Are there back testing capabilities? Software packages offered by brokers are getting increasingly more complex. Vast majority of traders will never use all the features offered, so chose what you need and keep your screen organized.

Most traders forget about demo accounts once they start real trading. A mistake. One should keep it for as long as possible. Some of them never expire, so they are always available. Some expire after 30 days. However, as long as you have a live account, you should always be offered demo. Now, sometimes you might have to re-register every 30 days. Check your brokers policy and make sure your demo is always up and running.

Why? Well, trading is not a static endeavor. One should always do research, work on new trading approaches, in other words practice. Created new system? Try it out in demo first. Like somebody else trading signals? Try them out first and give it some time.
Has your broker just introduced new tools to the trading platform? Give them a shot in your demo.

Don't forget your practice account. Even if you trade live, there is still plenty you can do in your demo. Great tool, so use it. One more thing- it is free.

About the Author

Mike P. Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on www.spectrumforex.com. Spectrum Forex LLC offers numerous services to individual traders. He also publishes trading blog www.fxmadness.com. With questions and comments e-mail him at kulej@spectrumforex.com.