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The Importance of Trading on a Forex Demo Account

Jul 20, 2008
A Forex demo account is essentially a practice account allowing investors to use "paper credits" in place of real money when making their trades on the foreign exchange market. In recent years, demo accounts have gained immense popularity following the increased interest towards Forex trading as a form of financial investment. To understand the rise of this phenomenon, it is necessary to examine the importance of trading on a Forex demo account.

To start things off a little, it is important to understand that the business of Forex trading is in essence a form of financial investment. Treating the Forex market as a casino would ultimately result in horrifying consequences as losses in Forex trading can be massive.

Thus, it is important for the would-be investor to first acquire a firm grounding in financial literacy. This would entail having a firm grasp of the various types of investment concepts such as technical analysis and fundamental analysis. Yet, theory without practice is often useless, which is where the importance of trading on a demo account kicks in place.

A Forex demo account would allow novice investors to familiarize themselves with an online trading platform. Direct entry into actual trade can be pretty much daunting given the plethora of tools on modern day online Forex trading platforms. Worse still, wrong decisions may be made resulting in potential losses.

In comparison, a Forex demo account would allow the novice investor to learn the basic functions of an online trading account such as placing the buy/sell order, the stop loss order and the profit limit function. Knowledge of when to use these features of an online Forex trading platform is invaluable in guiding you to the path of success in Forex trading.

Moreover, a demo account would allow investors to put theory into practice. What this means here is that the investor would be able to apply knowledge acquired through Forex investment books in practical fashion without the fear of making actual losses. This is extremely important to novice investors as it would allow them to learn the ropes to Forex trading, allowing them to critically evaluate their various trading strategies before they make their first real trades with money.

While many have criticized the lack of realism with the use of paper credits, a demo account is by far the best way for novice investors to learn the ropes of Forex trading before they dive into the actual market.

Forex demo accounts also provide the seasoned investor with a useful platform to put untried trading strategies into practice. Wish to make a modification to your current trading strategies but unsure of its effects? Try things out on your demo account before you proceed into the actual market. You would be able to evaluate the results of your decisions from a safe distance, sans the possibilities of making any actual losses. Many veteran investors today make use of Forex demo accounts as a means to refine their trading strategies for even greater investing success in the future.

In short, it is important to trade on a Forex demo account. Whether you are a novice investor or a battle-hardened veteran, there is much to be gained in terms of practical knowledge and investing experience.
About the Author
Click Here to get FREE access to the secret Forex Trading newsletter where you can learn about Forex Currency Trading. John Callingham is an authority on Forex Trading providing valuable advice at http://www.forexsimpletrading.com.
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