A demo account in forex trading is very important. It helps new traders learn the basics before they risk real money while seasoned traders experiment trading strategies and expert advisors (EAs). Regardless of your trading experience and prowess, everyone needs to have a demo account; probably even several of them.
Being a tool for experimentation, it is safe to assume users are going to have different account settings. However, you might want to adapt that demo account’s settings to better mimic actual trading circumstances. After all, it would not be sensible to use the same strategies if the trading conditions were different. Nevertheless, the demo account settings can be a bit different, as long as they don’t affect the core principles. To show you why this is, consider a few demo account settings you will be asked to set as you open the account.
Since we are not talking about real money, the instinct is to go big and deposit, say, a million dollars. Unless you intend to deposit a million dollars to your live account, then demo trading with that amount would be misleading. Remember that your account balance determines your trade margin, and if you exceed the minimum required margin, you’re hit with a margin call. The lower your account balance gets, you might even be stopped out.
Let’s assume you have $1,000 to deposit into your live account, and you use a demo account with a million dollars. You will be more likely to get margin calls or even get stopped out because you will be trading larger sized lots. Your being used to trading bigger lots for higher profits will work against you when you finally switch over to a live account. Sure, you might say that you are able to reduce your lot sizes later accordingly, but then you would have misused the demo account, where you were supposed to learn specific trading strategies. After all, you never see football players practice outside the field before the game, do you?
Nevertheless, you are allowed to be a bit eccentric with the demo account balance, and it doesn’t have to be the exact value as your live account’s. It is on a demo account that you are supposed to practice different strategies, so you should have a little bit more money so that you can open several trades simultaneously and not have to keep making deposits after every loss. On all my demo accounts, I use a $10,000 balance, which gives me the freedom to try new things without making myself disillusioned.
Again, here, you need to keep the leverage on your demo account similar to that of your live account. Higher leverage can give you very high profits on a demo account, and them you become frustrated when you can’s replicate the results on a live account. For example, when the CySEC capped leverage at 1:50, this did not extend to demo accounts. Therefore, keep the leverage exactly the same as that of your live account, or maybe just a little bit higher. The point is not to allow ourselves to be misled about what a particular trading strategy can produce only to be disappointed with the actual results. Besides, there is the basic concept of keeping leverage low that you should always consider as well. Do not let yourself be misled by attractive offerings when they cannot be replicated later on.
A broker may have several forex trading platforms available, and you need to make sure you use the same platform on your demo account as you intend to use on a live account. Using different platforms may complicate your live trading when you find it difficult to adopt to the new environment.