Getting Started Trading with a Live or Demo Account

As a novice trader, there is much to learn. Before you let yourself loose on the Forex market, it's a great idea to practice with a Forex Demo account. Trading with a demo account allows you to study the Forex market, work out what indicators you like and what strategies you want to use.

What is a Forex Demo Account?

A Forex demo account allows you to practice trading Forex in precisely the same way as you trade a live Forex account, but without risking your capital.

Imagine, before passing your driving test or never having driven a car, and you are gifted with a top of the range 3-litre turbocharged Mercedes. With the keys in your hand, you sit in the driver seat and have no idea what to do. You start the engine and drive forward. The power of the vehicle is incredible, but you find it hard to control. Oh dear, look, there's a tree ahead.

Launching into a live Forex account without experience is somewhat like that. You have no idea how to position yourself in the market and use technical analysis, indicators, or strategies.

What Can I Do in a Forex Demo Account?

You can do anything you can do in a live Forex account except losing your money.

1. Practice with moving averages and other indicators

Set up various templates to test out your strategies. Play around with the charts and try as many scenarios as possible. We learn from mistakes, so make as many as you can.

A demo Forex account allows you to do the things you NEVER want to do with a live Forex account. For instance, see what happens without a stop loss. Or place random orders in the market. If you blow your demo account, great, you've learned what not to do.

2. Establish the protocols you intend to use with a live Forex account

Your broker will offer a selection of demo account balances when you start, often up to a crazy sum like £50k. Trading with huge lots is unrealistic. Choose the demo account size closest to your intended available capital when you go live. Trade the lot sizes as if you have a live Forex account. Trading a £50k account, winning, or losing thousands of pounds, does not prepare you for trading a live Forex account.

A demo Forex account's purpose is to prepare you for when you start trading Forex with a live Forex account. Think of it as on-the-job training, forming part of your Forex education.

How Long Should I Spend Practising with a Forex Demo Account?

Choosing when to move to a live Forex account depends on your ability to learn from practising with a demo account. The below list is a guideline you may find useful for knowing when to take that big, important step -

1. When you are consistently in profit - that doesn't mean you have no losses, as they are part of being a Forex trader. If your wins are always greater than your losses, you are close to making the switch. Remember, the risk to reward ratio needs your profit returns to be greater than the losses.
2. You are mentally disciplined - setting stop loss and take profit targets on every trade.
3. You are NOT emotional about losses or wins – you are calm whatever the outcome. This mental discipline is undoubtedly the hardest to master. But, until you are in control of your impulses and reactions, you are not ready for a live account.
4. You have nailed your strategy – you know 100% what you are looking for on the charts, and you can execute the strategy when you see the signals in the market.
5. You have one or two templates to work with – you have selected which indicators and tools you prefer and have saved them as templates for your trading platform.
6. You have worked out your rules and objectives for trading – Do you want to become a master of Forex trading or make a lot of money? Do you want a little part-time income, or do you dream of becoming a professional Forex trader?

What are your trading goals, and over what period, daily, weekly or monthly? For instance, you may set a target of 10% a month gain, or 1% a day, at which point you stop trading.

What are your trading goals, and over what period, daily, weekly or monthly? For instance, you may set a target of 10% a month gains, or 1% a day, at which point, you stop trading.

It will help if you have parameters for when to stop trading for the day after a run of losses. You may decide on walking away after three consecutive losses or as a percentage of your account.

Setting targets and establishing rules takes out the guesswork, which is hard to do under pressure with live trades. Figuring these things out before you start live Forex trading will put you way ahead of most novice Forex traders.

7. You know what timeframes to trade – trading in a demo Forex account will help you decide what timeframes you prefer, which may depend on the available time you have.
8. You have a routine time to trade - experiment with what time of day suits you to trade Forex. Creating a routine helps to build consistency of trading style and mental preparation.
9. You have clarified your risk management – You have decided what your risk to reward ratio will be and what percentage of your capital you are prepared to risk.
10. You have taken multiple trades over a period – In your demo account, practice is vital to shaping your Forex education before you go live. On average, many professional Forex traders suggest six months of trading with a demo account is a good foundation before going live

Open a demo account with your broker and follow the above guidelines. It can be tempting to think you are different from other novice traders. You may be a calm person and cannot envisage becoming frustrated and emotional about trading live. Remember, there's a 95% failure rate in Forex trading. Be different in as much as you spend the time needed to prepare you for live trading.

Are You Ready to Trade Forex Live?

If you have mastered everything written above regarding a demo Forex account, then you are ready. The ONLY difference between a demo account and a live account is your emotions. So, let's tackle that.

When you start thinking about live trading, you may experience one of two things –

1. You feel confident in your ability to trade Forex
2. You are convinced you need more time to practice

Great, if you feel ready, but how do you know if you need more time trading with a demo account? There's only so much practical learning you can do. At some point, you will know enough to switch to a live Forex account. If you have traded a demo account for six months and make a consistent profit, there is no reason to delay. And yet, many novice traders wait to make the transition.

We get it. We know it's scary realising you will be risking real money. The truth is, you won't know how you will react in real-time. You may mess up and have some losses.  However, at this stage in the guide, you understand money management and risk management. You appreciate you won't be trading large sums of money or having huge stop losses. You will be trading micro-lots because, at this stage, it isn't about making money.

You are just getting used to what happens when you place live trades. You will be watching your reactions and practising all the principles we have outlined in this guide.

It won't be any surprise if you feel frustration building or feeling upset when you make a loss. The first hurdle to overcome when you start trading with a live Forex account is to manage your emotions.

How do I Manage My Emotions When Trading Forex?

The downside with a demo account is you know it isn't real. Your brain knows there is no risk, it's not real money, so you feel pretty chilled when you have losing runs.

The trick is to have the rules in place and have an excellent understanding of Forex. That is all the preparation you can do.

If you are like the majority of novice Forex traders, the biggest issue will be frustration. The Forex market is a fickle playmate. You may think it's on your side. A trade is going the right way, and then the price spikes and takes you out of the trade for a loss. Then the price moves to the area where your profit target was. Accepting this is part of Forex will save you a lot of heartaches.  

Develop a sniper mindset, watching the Forex markets patiently, waiting for the perfect moment for your strategy to show you a signal for entry.

What Else Can I Do to Help My Forex Trading Education?

Keep a journal. Buy a notebook specifically for this purpose. Write down every day what happened with your trading. You will see the trading patterns and habits reflected in the pages. This daily exercise is a form of continued education.

Suggestions for journal entries are:

1. Write down every trade you take. Note the entry & exit price, your stop-loss and the risk to reward ratio.
2. Journal the reasons you took the trade and what strategy you used.
3. Were you impulsive and didn't wait for a signal.?
4. Did you watch the trade continually or walk away and leave it to do its thing?
5. Did you feel frustrated or angry?
6. Did you check the economic calendar before taking the trade?
7. If the trade lost, did you take a revenge trade? This behaviour is not uncommon. When price action moves in ways we don't expect, taking out our stop loss, it can feel personal – yes, we know that sounds crazy, but live trade for six months, and you'll be on the same page.
8. Did you walk away after several losses? (the number you decided)
9. Did you feel euphoric after a win?
10. Write down what you feel you did well and what aspect wasn't so great.

A journal is great for a rant when the frustration of trading Forex overwhelms you, which it likely will during your formative months of live trading. Over time, as you learn from your mistakes and successes, you'll find you need your journal less and less.

When you start trading Forex live, write down your rules for your trading plan and strategy. In the heat of the moment, this will help to create discipline and good habits. Whilst it may seem tedious at first to keep checking your notes, in the long-term, it will pay off with dividends.

In short, do what 95% of novice Forex traders don't do. Behave like a professional Forex trader from day one.

Key Takeaways from this Guide Part

1. Time spent practising in a demo account will reap the rewards when you trade live Forex
2. Treat a demo Forex account EXACTLY as if it is a live account with your capital
3. Take as long as it takes in a demo account to build your confidence. Don't compare yourself to other novice traders. Everyone is different. Build your confidence over time
4. The only real difference between trading Forex with a demo account and a live account is the emotional responses to live Forex trading

Conclusion

A Forex demo account is a superb platform to practice and make as many mistakes as possible.  Use it as a form of education. When you feel fully confident of every aspect of Forex within a demo account, you are ready to step up to trading live Forex. Don't compare yourself with other Forex traders. Your trading journey is unique to you. So take as long as you need to prepare yourself for trading live.

Next: Guide Round-Up