A Forex Demo Account is provided by almost every top broker. It is a powerful tool to learn how to manage your money and trade with forex. With a forex demo account, the fear and greed can be controlled in a much better way. With a real account these emotions are stronger and often they may lead to wrong decisions.
Nevertheless, regardless of how brilliant or faulty your system can be the maximum amount that you can lose or gain in demo trading is zero. Demo trading is a game, but forex trading can involve high risk actions that can lead to significant consequences your financial well-being.
Of course, there is also the possibility that a competent trader gets rich. In all cases, forex trading is about risk management, and since demo trading has nothing to do with risk, it can never be as reliable as testing your potential in the real market.
An often misleading aspect of demo trading is the large amount of the starting capital available to the beginners of forex. It is typically between $50-100,000. This account provides a false sense of security for forex beginners. Since it is hard to wipe out that much money in a short time, the trader can learn trading taking unnecessary risks and then trade the real money with a misplaced sense of confidence. That is not bad for to understand that any capital committed, and any trade initiated may lead to a profit. But it is not good for the trader who must sooner realize that the false confidence inspired by demo trading did not have any relationship to reality.
Nevertheless, there is no better way of learning how to place a stop-loss/take profit order, for example, than playing the game of demo trading. But remember that demo trading is not for getting used to risk, or for understanding it. The only way of achieving that goal is trading with real money, by very small sums, probably by making use of a mini account at the same time.
Use the real deposit sum: Start the forex demo account with the sum that you intend to use in the real account. Usually your broker will “deposit” some default sum into the demo account. So set the sum you intend to deposit.
Stick by the rules: It’s important to be strict with yourself with money management at the early stage, before real trading, whatever the rules you’ve learned.
Keep records: It’s crucial to record your actions as well as the reasons why you put the stop loss there, and why you chose a certain trade. Recording each trade and keeping logs of the charts in your forex demo account will make you a better trader.
Learn from each demo trade. When you go the real trading, your experience, especially the bad experience will help you a lot.