Getting Ready To Deal In Forex Market With Real Money
When you are sufficiently comfortable using your forex demo account – that is, you have learned the functions of the terminal, you can make trades and not make mistakes such as buying when you wanted to sell, and, most importantly, you know how to use stops, it is time to try trading with real money. There is not much value in getting superb profits in the demo, 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 playing with fake money, winning contests, and developing elaborate day trading strategies for the demo, often show less than spectacular results when they attempt to do forex online trading in a real account.
A demo forex account is quite different from a real account in two ways.
The first and well known 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. There is no easy way to circumvent this effect. Basically, you have to learn to be aware of it and make conscious adjustments when under stress .
The second and less well known distinction between demo and real trade is in order execution.
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Demo forex accounts are running in fully automatic mode. 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. As a result, your trade can take several minutes to execute, while it is practically instant in a demo account. Inconveniently, the faster the market is moving, the longer is the delay. Especially if you use market orders, the price at which you finally get filled can be very bad.
In addition to that, forex simulation on a demo account does not model the filling process. Using a generic price feed, the brokering computer fills you automatically at the last price that was in the feed. When you are trading forex live, especially during high volatility, getting filled is in no way guaranteed. The dealer may inform you that there is no current price, or when you finally get a quote, it may be way off from what you see in the feed.
Altogether, it is too easy to trade in demo forex. Your judgement is not affected by fear and greed, improving your analysis. A wrong decision has ho consequences 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 type of testing helps, 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.
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