Forex Practice Accounts

Forex Practice Accounts - Are Demo Accounts Really a Good Thing?

Free Forex practice accounts are a service that are loved by some yet hated by others, why is this so? Surely a free practice account can be nothing but a good thing?

Not exactly so, it does have its benefits but also has it's pitfalls, in this article we will examine the pros and cons of such an account.

Let's start off by looking at the practice account. For those who may not be aware, the free practice account does exactly what it says on the tin, it lets you practice Forex trading for free, sounds great for a newbie trader and in many ways it is.

The brokers who offer a free forex practice account do so to help get people interested in Forex, nothing wrong with that since they exist to expand the number of traders in the market and on their platform. It's also a great way for the new trader to begin to learn Forex trading.

Currency trading is no simple click and go experience, several brokers have introduced no frills platforms with low minimum deposits to get the virgin trader started and one or two have taken it a step further and allowed people to open a free practice account where you can begin trading with make-believe money until you have the confidence and knowledge to risk your own hard-earned cash.

That's were the main pro of the practice account lies, in being able to learn the Forex market and key functions of trade without risking a penny! However, this is not always good news.

When trading with 'virtual' money suddenly the risk becomes less, in fact risk is non-existent as you have an endless stream of make-believe money this means you may be more likely to risk on trades you know you shouldn't and wouldn't make in the real world. This can lull you in to a false sense of security.

Lets say you make en extravagant risk with practice money and it comes off, so you make another big risk and that comes off too, all of a sudden your confidence is up and you feel you can start playing with your own money and taking uncalculated risks.

The Forex market has suddenly become very very appealing, if you can make this much money in the practice area imagine how well off you would be if you were using real money? This is where things go wrong, you then go ahead and open a real Forex account and deposit your own cash.

Your confidence is up and you feel like you know what you are doing. You make a risky trade with your own cash and it fails, suddenly your Forex career is over and you are sat looking at a significant loss, it seems when its your own 'real' money the practice you got with virtual cash counted for nothing.

Of course if you take things slowly and carefully you can avoid this and become a successful trader, but you have to have that self control. Practice accounts are very useful, but only if you carry out trades exactly as you would if it was real money. Never make a trade in a practice account that you wouldn't make with your own cash!

To help get around this several brokers now offer mini-accounts with deposits as low as $25. This is virtually a practice account anyway with such low deposits, however, its still your own cash so you are more likely to make realistic trades and not risk big time trades.

At Investawise we feel this is the best option, sure use a free practice account for a week or two while you learn the basics of Forex trading, but then open an account and start with low funds, never jump both feet first into currency trading, success comes from patience, awareness, and discipline.

Paul Bryant is a successful and experienced Forex trader and also the webmaster for http://www.investawise.com, bringing you all the latest Forex news, reviews and advice.

Article Source: http://EzineArticles.com/?expert=Paul_Bryan

Free Practice Forex Trading

Practice Forex Trading Transition To A Live Account

Retail forex brokers generally offer free forex trading practice accounts, otherwise known as demo accounts. These accounts allow new traders the ability to practice currency trading without any risk, others the chance to test out a broker platform at no charge and also the opportunity to test out trading strategies without risking real money. From the brokers perspective, it gets a chance to show what it has to offer and hopefully encourage the opening of an account with its firm. This article is geared to the new trader and aims to point out the difference between trading a demo account that does not risk real money and trading a live account.

There is a major difference between forex trading using a practice account where no real money is at risk vs. trading a live account with real capital. It doesnt matter how much money is at risk. It is very different when trading with real money. This is when psychology and emotion get factored into the mix.

There should be little emotion associated with trading a forex practice account. A position can go against you and it should not trigger any emotion as there is nothing at risk. You can let a losing position run with no concern of losing your capital as only your paper balance will decrease. If the position eventually recovers and makes money, it does not prepare you for real-time forex trading. In fact, it may send the wrong signal that you can hold on to a position indefinitely until you recover a loss. You may get more excited if you make profits trading a demo account but it cannot compare with making real profits with a live account. Experienced traders will tell you to keep emotion out of trading but that is easier said than done, especially for new traders who have not experienced the highs and lows of this business.

It is a different ball game when trading an account funded with real capital. don't care if you risk one dollar or a thousand dollars. There is a difference when real money is at risk. It is hard to describe until you try trading with real capital but it is different when your emotions rise watching a position go into the red and seeing your account balance go down. This is especially true for the retail forex trader who often comes into the game either undercapitalized or trading with excessive leverage.

This brings up another issue trading with a demo account. Currency trading practice accounts often come with a $50,000 balance and it is easy to leverage it up since it is only paper money at risk. It is also easy to place a wide stop or no stop at all since you are not risking real capital. It is therefore easier to make money this way if you use excessive leverage, do not use stops and get lucky if it is a time when markets are not trending. If your account gets wiped out, you can always open a new practice account or ask the broker to replenish the existing account. This makes the transition to a live account even more difficult when the reality of trading with limited capital takes over. If your account gets wiped out, you either have to replenish the capital or drop out of the game. Losses are part of the learning process and all traders experience them. It can become even more painful if a trader enters the game with a false sense of confidence.

Now dont get me wrong. I am not criticizing forex practice accounts. In fact, I think they are a wonderful way to learn how to trade. I wish they were available when I started out. Forex brokers provide a great service to the forex trading community by making them available. My issue is with new traders and how they generally use them. If a currency trader trades a demo account without a systematic approach, disciplined money management, proper use of stops and leverage, looking for good risk/reward trades, etc. then the transition to real-time forex trading may be less painful. On the other hand, if a trader does not trade a demo account as he/she plans to trade in real-time, then practice trading can become a fools gold. Nothing will prepare you for the emotion associated with trading real money but if you take advantage of a practice account to hone your skills as if you were trading real-time, it will at least prepare you for currency trading in real-time conditions.