A surprising number of Forex traders try to start trading live as soon as they think they know the ropes. There are numerous reasons this is a really bad idea and is likely to result in you blowing your FX account in no time. Most traders wash out of live trading within a couple of months at the most. There are few professions with a higher rate of failure. Demo FX trading gives you a much better shot at success. Here are some of the reasons why you should trade with virtual money for a while before switching to the real thing.
- You do not have to lose money learning how to trade. Unlike most professions, which require you invest money in your education, you can actually train on a Forex demo account for as long as you want without spending any money at all. There is no limit to how long you can demo test. So why lose real money when you do not have to? One thing which is not different about Forex is that it is a real profession, not a hobby, and as such it requires that you do invest time and effort into learning. Save up your money for when you are ready to profit.
- The practical implications of trading in real time may surprise you. You could have a system that performed very well in backtesting and be useless in real time because you are not awake at the right hours to trade or you are at work and have no way of placing your trades. That does not mean you should go back to square one, but you will definitely want to find out that you need to make some adjustments to your trading or your lifestyle without money on the line.
- Your emotions may surprise you. How many of us have gotten nervous just placing a backtest trade? The emotions which you have to deal with when trading in real time are usually amplified, especially since you have more (or less) time to think about your trading decisions. You may also not be able to predict your reactions to certain circumstances. It is hard enough dealing with FX losses — but how will you deal with wins? Many Forex traders are surprised to discover that when a trade starts winning fast, their emotions can be just as challenging to navigate.
There are some things which you simply cannot backtest. You may be able to test the theoretical application of a trading method in backtesting, but you cannot test the actual application of that method without demo testing. There is a huge difference between the two, and you will not realize how huge until you try to trade in real time. So set aside the time and effort and save up your budget. Demo test Forex until you become consistently profitable. Some traders do well on demo testing from the start, but for most, there will at least be some hurdles to overcome. You do not have to lose money overcoming them.