There is no denying that practical forex training by way of a demo account is vital for your success in the forex market. Even though the benefits of practising on a demo account cannot be understated, they should also not be overstated as is the case with most resources on the internet.
Practical training through demo accounts is indispensible but it should never be implemented blindly. You have to be careful of various things if you are going to practise through demo accounts because even these accounts have their inherent limitations. What should you do to counter these limitations? Here are some tips.
Match Account Equity
The moment you open a demo account, you will see that it has been equipped with enormous sums of virtual money. As you will never begin live trading with such enormous sums of money then why should you practise with so much money? There is no reason to support this.
In fact, when you conduct your practical forex training with more money than you plan to use then the environment you are practising in is not really the same because with large sums of virtual money your strategies will be different, your emotional responses will be different, and even your drawdowns would be different.
Use Realistic Position Sizes
Not only should you find ways to cut down the virtual money you use to give yourself practical forex training, but you should also make sure that you trade like you would with limited sums of money.
On the ground, this means that your position sizes reflect your account equity and are based on your assessment of risks, risk to reward ratios, and even your performance.
Try to Incorporate Slippage
One thing that no forex brokers will provide you is a demo account with realistic limitations like slippage. You have to make sure that you introduce this element independently during your practical forex training period. This means that if you are going to place a market order at 1.350 then you should endeavour to place it on 1.355.
Invest Yourself Emotionally
Because practical forex training on demo accounts involves virtual money, traders never really care about their accounts. This is in direct contrast from what you will experience with a real account.
This is why you must try to invest yourself emotionally with your demo capital whether it is by competing with a friend or giving yourself rewards and punishments based on your performances.
Keep Records of Your Trades
When you finish your practical forex training and actually enter the live market, you will have to keep a trading journal where you record all your actions in the market. You should start this process while you are practising in a demo account. By the time you reach a standard account, this would become second nature to you and would help you greatly in the long run.
There is a huge difference between practical forex training through demo accounts and trading with standard accounts, regardless of what forex brokers may tell you. This is why you should prepare for it.