Any skill requires practice before it is perfected. Involvement in the fast moving world of forex trading is no different, and that practice can be costly if it is not undertaken through a forex demo account. Most brokers and online trading platforms offer these accounts, which provide much the same data as a live account but involve spending no real money and are not connected to the market.
Whilst some brokers offer their own bespoke trading systems, if you have not yet decided which broker to use, it is probably best to find a demo account which utilises the Metatrader platform. This is the most popular generic trading platform currently on the market, and as such is well worth getting used to. Obviously, your first action should be to explore the main features of the demo account, and to go through any tutorials or manuals which are provided with it. You shouldn’t leap straight into using the account before you have at least a foundational understanding of the features involved.
After you have gained an understanding of the basic functionality of the platform, the first thing to do is to backtest your trading system. If you have a basic idea of how you want to trade and what sort of approach you want to use, you should look at the historical market data which will be available for the last six or twelve months, and see how your system would have panned out. Would you have gained or lost money? Can you see what changes you would have needed to make in order to turn a profit? Once you have worked this out using historical data, it is time to use the demo account to apply your system to real-time data.
You should give yourself plenty of time on a demo account, so as to learn how to best respond to various market conditions. This will also give you the time to investigate the best methods of analysis for your trades, and how to shift your strategy depending on what you learn. However, don’t be fooled into thinking that once you have mastered a demo account, you will inevitably turn a profit in your first few weeks in the live market. For a start, the functionality available on a live account is likely to be subtly different than in your demo account trial. More importantly, however, it is simply impossible to replicate the kind of emotional pressure that you will feel when real money is on the line. It is very easy for emotional reactions to take over in live account trading, and this is something which is not an issue during a demo account trial. For this reason, experts tend to advise beginners to the forex markets to start out with several small trades, and to ease their way into their system. Those who believe they have it all figured out simply from success during their demo account operations are likely to come unstuck, and lose money.