How a Forex Demo Works

Trading on the Foreign Exchange Currency Market (Forex) has become an increasingly popular option for investors who want a faster return. It is not without its risks and pitfalls and because currency exchange is handled differently from the stock exchange, it can be hard to know what you are getting into and whether or not you should open an account. Forex transactions are done electronically across global districts according to the time zones of each. This means that trading is available 24 hours a day during the exchange week. Trading is done via proprietary platforms and feeds. Fortunately, most Forex platforms provide demo accounts so you can try trading on their service before committing your money to their system.

The Basic Overview

Once you have downloaded the front end of the trading system you want to use, register to open an account. This is funded with a preset amount of virtual money. You can then login and trade in a simulated environment to get a feel for how the system’s feed works and how to run the program. It is very important to understand what is meant by trading “virtual money” in a “simulated environment” or you could easily find yourself in a difficult situation later.

Virtual Money

The demo Forex account is funded with virtual money. This means that the money in the account has no real or transferable value. It is a representation of currency, much like the play dollars included with a board game. At no time during your use of the program does the virtual money represent any money you can withdraw. The caveat is that some brokers may offer an incentive bonus to people who show a high earning in practice when they then open up a real time fund. A real time account is live and funded with actual money.

Simulated Environment

No matter what company or broker is providing you the Forex demo, it is a simulated environment only. This means that while it may receive real time feeds from the market exchanges, there are going to be aspects of the representation that are either missing, or not valid. Many programs will allow you to trade in amounts or currencies that are not available in real time. Also, the simulated environment is often too reliable and does not recreate the errors and slippages of the real time exchange. The goal of the trial package is to come as close as possible to recreating the real environment so you can learn how to use the front end to buy and sell. It is a training device for the program but it will not represent all the possible elements and influences of actual trading.

Should you try more than one?

Every person comes to Forex with a different idea of how to make a profit off of the exchange. The value of currency is influenced by many different things, some quantifiable and some not. Some people will put more stock in trying to read the economic reports and natural resource data of countries when predicting value behavior, while others will be reading political reports to try and gauge public feeling for influence. Every feed is going to be filtered towards one or the other preference. Finding which one suits your goals and approach best is reason enough to try more than one trial offer. You should also try several types of frontends because how you manage your trades will determine how you will use the software. Some packages will present as much data as possible in a spreadsheet style that will take time to analyze. Other packages will commit more to user defined filters so a quick view will be enough to give you the information you need. One thing to remember, before you open an agreement with any service, make sure that you read the agreement carefully and that you are not committing to a contract that automatically transitions from a free demo to a paid account unless you are prepared for that.

Gaining Experience

The other benefit of using a virtual program is it allows you to gain experience with different ways of reading the market and making trades. Even if you are a seasoned trader, you may want to use the virtual accounts to try out new approaches to lessen your risk. For new traders, this can be an ideal way to see if you have the temperament and commitment to doing your own trading. While doing it yourself always sounds appealing, the reality may be that you are better off connecting with an established broker. The best way to find out is to try it without having to risk any real money.