When to Leave the Demo Account and Switch to Live Trading

When you are first starting in the world of forex trading, it is always a good idea to do a fair bit of demo trading before you start risking your own money. Demo accounts allow you to familiarise yourself with the financial markets and to make mistakes and discoveries without running up losses. They also give novice traders an opportunity to test out strategies and learn what works for them.

Before you make the switch from demo trading to live trading, you need to be sure that you have developed the skills that are required for successful forex trading. One of the principal benefits of using a demo account is that it lets new traders learn how everything works. It is important to have a good grasp of the mechanics of placing a trade and attaching orders to those trades, such as stop loss orders. It is also crucial that you familiarise yourself with the characteristics of your chosen market. This includes things such as typical levels of volatility and the kind of economic or political news and events that can affect the direction of the market. This type of knowledge will give you greater insight into the key triggers for buying and selling.

Before you make the jump into trading for real, you want to have some proof that your investment skills are strong enough to back with your own money. It is best to evaluate this over a significant length of time, as a few profitable trades may not necessarily be the most reliable indicator that you are ready to go live.

Although dummy accounts often come with large starting balances, such as $100,000, unless you are actually planning to invest this amount in real life, then you should try to stick to demo transactions that mirror the size of your potential real transactions as closely as possible. This will give you a more realistic idea of your worth as a trader, and of how much you can reasonably expect to win or lose when you are trading for real.

Often, the transaction costs involved in real trading are not factored into the demo trading results, so you should always include these in your calculations when you come to evaluate your performance. This will give you a more complete picture of how you might expect to fare financially on the forex market.

Another way in which you should try to stay within the bounds of realism is when it comes to the amount of time that you spend trading, and when they trade. Your activity on the demo facility should reflect the hours that you expect to trade once you begin trading in earnest. For example, the results you get spending all day on the demo platform while you are on holiday will probably be quite different to the type of results you will get during the working week when you have less time to trade.

Developing a trading strategy is a crucial step on the road to becoming a successful trader. A trading strategy is a set of rules the trader uses to define his activity. The best strategies are as tried, tested and as mechanical as possible, and the best place to try out different strategies, and get used to sticking to them, is on the demo mode. If it proves successful, then it will give you more belief in the strategy, which you will need in order to be self-disciplined about it.

Perhaps the most important skill a trader can have is the ability to control their emotions and detach themselves from the trading results. A trading strategy will only work if you stick to it, and you must control your emotions in order to do this. Before you graduate to a real trading account, you should have learned to override your emotional impulses and stick to a strategy, otherwise you could be setting yourself up for a lot of grief.

Forex trading is a high-risk activity with the potential for massive gains and massive losses. When faced with this risk, many novice traders panic and make poor, fear-based decisions, rather than sticking to their trading strategy. One way to avoid this is to test your strategies extensively using appropriate lot sizes. This will give you confidence in your judgement. If you lose, try to avoid chasing your losses by staking higher and higher amounts, and treat every trade as a separate action.

If can be tempting to get carried away with a few big wins, and start taking bigger risks when your confidence is up. However, this can be a recipe for disaster, and again you should stick to your trading strategy and have a risk management plan in place to reduce your exposure to risk.

The other major function of the demo mode is to evaluate several brokers so that you can find the one that best suits your needs and preferences. Things to look for in a broker include a user friendly interface, low spreads, trading tools, and access to analytics and market news.

Source: www.tradingquarter.com