JAN 15: The Ins and Outs of Trying Out a Forex Demo Account

by David Jenyns on January 15, 2007

Trying out a forex demo account is a method used by literally thousands of potential forex traders and investors to determine if forex trading is truly for them. With a demo account, an interested person can go online and see exactly how an account would work. They are able to do the forex equivalent of the war games generals play in the Pentagon. Without investing and risking any real money the investor can pretend to have money in an account and make buys and sells the same way it would be done in reality. The software used for these demo accounts is very realistic, and generally a person is able to see at the end of the day if they would have lost or gained money if the transactions had been real.

It would work very simply. Let’s say an investor pretends to have a margin account with ten thousand dollars in it. He looks closely at the currency markets and believes that the dollar will go up in value against the yen. The demo account allows him to buy at a ten to one margin, so he buys (in the program) one hundred thousand dollars of dollars and sells one hundred thousand dollars of yen. There will be a spread, or difference, which amounts to the pretend profit.

Why would a person want to use one of these pretend demo accounts? The reason is found to be because it is always much safer to learn how to do this sort of thing without having actual money at risk. The same principle applies when kids in driver’s education classes sit in demonstrator modules that resemble real autos. They are able to practice driving without taking risk. They maintain heir safety while they build their skills, knowledge and confidence. Pilots follow this idea also by using flight simulators. You would never think of flying an airplane unless sufficient time had been spent in a flight simulator first. The same holds true for forex trading. Spending time with a demo account allows the potential trader to gain skills and learn the ins and outs of the game and the market place. A person is then able to see if they truly have the instincts necessary for the market and have sufficient knowledge to “play with the big boys.”

Most brokerage companies involved in forex trading have such demo accounts available, sometimes free and sometimes for a small fee. Even if a fee is paid, it is usually worth it because a forex trader can parlay his skills and knowledge into vast profits after spending some time practicing with the forex demo account. Generally checking with a broker can get a demo account set up quickly. A trader with an interest in setting up a forex demo account can also go online and find a vast array of companies ready, willing and able to help the student trader set up an account and enhance skills. Learning what you are doing is always smart, no matter what game you are playing, and forex trading can certainly be seen as an advanced financial game.

John Jackson is an example of a person who benefited from a forex demo account. After months of study of the forex market, Jackson was convinced that he could make a go of it as a day trader in the forex market. His wife however wasn’t convinced and was a little less risk inclined. Jackson went to a brokerage company online that he felt good about and trusted. He set up a demo forex account and began to make trades as though he were using real money. After several days, on paper, Jackson had made a consistent profit. As he learned and as his confidence increased he became even more anxious to open a real forex account and invest his money. His wife also saw how on paper he had made a nice profit and relaxed, taking away her objections. Today Jackson and his family do very well financially through forex trading, and his wife is confident that he will continue to do so. By using a demo account he was able to learn enough to go foreword and open a true account and is an active trader today.

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