When you are sufficiently comfortable using your forex demo – that is, you understand the numbers shown by the terminal, you can calculate your margin requirements before opening a position, and, most importantly, you know how to use stops, it is time to try trading live. Becoming great at demo trading can lead to a false sense of security, because real forex is quite different from it.

The demo is only a simulation, a computer game. The difference is about the same as between flying a Boeing 747 in a flight simulator and actually landing the thing. By analogy, most people that spend a lot of time trading the demo, winning contests, and getting high virtual profits with excessively risky trades, often lose miserably when they attempt to do online forex trading in a real account.

The reason why demo is so different from the real thing is two-fold.

The first and most obvious difference is in trader psychology. A great change in behavior happens when the person is aware of risks and rewards associated with a certain action. Would you agree to cross Detroit on foot at 11AM on Sunday? How about 11PM on Friday? Now, would you do it at any time carrying the equivalent of your annual income in borrowed money? What if you could keep the money if you make it to the other side at 11PM on Friday? The answer changes each time, although the action that you need to perform remains the same. Fear and greed rule the markets, and no matter what you tell yourself, you will act differently when your money is at stake in live forex trading. It’s a fact of life and there isn’t much you can do about it, except constantly being aware of this effect and learning to adjust to it.

The second and more obscure difference between demo and real trade is the way the trades are executed.

Demo forex accounts are always handled by a computer. A real account will have a real person executing your trades if any significant sum of money is involved, market volatility is high, or your broker has put you on watch for trading or winning too much. This means that order execution may be delayed for a minute or even more, while it is practically instant in a demo account. To much regret, you get the delay exactly during the fast price moves when you need split-second speed. If it is a limit order, it may easily fall behind the market and never get executed.

If that weren’t enough, there is guaranteed order filling in a demo account that doesn’t exist in real world. Using a generic price feed, the brokering computer “executes” your order on the basis of the last available price. When you are trading forex live, especially during high volatility, you will probably experience problems with filling. You are likely to get a message from the dealer stating that there is no price available, or you may get an offer that is significantly different from your order.

Altogether, demo forex is too forgiving. Your judgement is way better than normal because of the lack of stress. You don’t second-guess your decisions in the demo, and cutting losses is a non-issue when they are virtual. Order delays and bad fills don’t happen. Because of this, getting skilled in forex demo trading provides a dubious benefit. Of course failure of a strategy in the demo means that it needs to be improved, so this is a useful test, but it doesn’t work the other way around. Success of a strategy in the demo does not guarantee anything, especially if it is designed to catch small price movements. This is why the best course of action is to spend just enough time in the demo to learn the software and market basics, and move on to the world of real trading as soon as possible.

Discover a reliable and profitable source of income – forex investment!