With hordes of beginners choosing to trade Forex, there has emerged a need for effective ways of learning how to trade. After all, no one simply knows how to trade Forex. There’s just too many factors to try to pick up as you go. This has led to the creation of many excellent Forex trading academies. Another innovation that has come to the fore lately is the Forex trading demo account.
On the surface, starting with a demo account seems sensible. Surely it will give you the opportunity to learn through practice, which is more important than anything else, right?
Well, there are a number of critics of Forex demo accounts and they have some valid reasons. Let’s examine 3 of the most common criticisms to see if they’re outweighed by the benefits.
Con: Trading psychology not taken into account
The most common criticism of demo accounts by UK Forex analysts is that trading psychology is not taken into account. One of the major factors that influence how people trade is their emotions, and traders need to learn to manage those emotions. However, when using a demo account, traders get used to playing with virtual money, with no real consequences. They become reckless and make bad decisions.
Pro: It’s as serious as you make it
What the above criticism ignores is that virtual experiences can be very real. Think about how invested one can become in a game. Winning and losing, whether or not there are real world consequences, can become everything. The same is true with trading. Virtual trading is extremely real, even though you’re not at risk of losing money. Most traders will take the “game” very seriously. You can assess yourself to determine how you react to simulations.
Con: Unrealistic sums of money
Another oft-mentioned criticism is that Forex demo accounts provide you with $50,000 or even $100,000 of virtual money. Whereas in reality, you’re going to be trading with much smaller sums. Trading with such big sums of money is very different to trading on a smaller scale. You’ll learn to trade in a way that differs to how you’ll need to trade in real life.
Pro: You can keep yourself in check
Okay, trading with $50k is unrealistic to say the least. But you don’t have to trade with that much just because it’s available. It’s not advised to trade with that sum, and as long as you keep yourself in check and trade with a realistic number, you’ll be fine.
Con: Order execution is different
Another criticism brought against Forex demo accounts is that order execution is necessarily different. Since you’re not trading in real money, or in any way accessing the real market, orders can be executed much faster, leading to unrealistic expectations of your broker.
Pro: Advanced demo accounts make up for this
Yes, technically orders can be executed faster and more efficiently with demo accounts. But the good ones are aware of this, and emulate Forex trading accurately. You have no real need to worry about this, unless you’re using particularly outdated services.
Conclusion
There are criticisms of Forex trading accounts that have a strong basis in reality. However, all of these criticisms can be managed, so that they don’t end up losing you money or teaching you bad habits.