Regarding trading forex, traders can choose from two main account types: a demo account and a real account. Understanding the difference between these two account types is essential for those unfamiliar with the forex market and the trading process.
One of the primary reasons people prefer to go for demo forex trading is because it allows you to trade with virtual money. It helps train yourself and understand trading before you invest your hard-earned money. Forex brokers provide demo accounts to clients. Clients new to the industry can learn and improve by trading with these accounts’ aid.
Forex demo vs. real account
The difference between a forex demo and real accounts is that forex demo accounts are training accounts that traders can practice trading without using real money, without the risk involved. On the other side, real accounts operate using real money, and traders can lose part of the whole sum.
A demo account is a simulated environment where traders can practice trading without risking real money. This type of account offers many benefits, particularly for novice traders or those who want to test different strategies without putting their funds at risk. With a demo account, users can experience an authentic trading atmosphere without committing money and learn how to use the platform’s features effectively. Demo accounts also enable traders to try out different systems before they decide on one that works best for them.
On the other hand, a real account is where traders commit their funds to make trades in the forex market with all its inherent risks and rewards. Trading with a real account requires knowledge and skillset obtained through research, practice, experience, and trial-and-error. Compared to demo accounts, where investors won’t feel any losses when their trades go wrong, even if it happens numerous times, trading with a real account means facing financial losses when things don’t go as expected.
However, according to studies, even after a person has earned ample experience after trading with these demo accounts, things might turn out to be different as they begin to change with the aid of real funds. Trading with virtual money is more accessible than trading with real money, as you do not need to risk anything.
This write-up shows the primary difference between the fa forex demo and the real account. Take a look!
What is a demo account?
Forex demo account refers to a trial account where investors use a specific amount of virtual money when they are new to trading. It is regarded as an educational tool and provides a risk-free start to trading.
Please check our article on what you need to do if you want to change the demo account password.
Below is an example of a demo account where is a fictive amount of $100 000:
In addition to this, you can test your strategies without putting anything to risk at all. Trading in the demo account provides many good services to newbies who otherwise would have lost much real money.
When choosing a demo account, you can learn the tips for watching the market closely. It also offers a better feel and understanding of how the forex market operates without exposing yourself to any risk. In addition, it also helps you learn the latest features of the trading account.
What is a live account?
In the forex live account, you will gain success in depositing and trading with real money. Hence, any profit or loss will be accurate as you use live accounts. If you are willing to start trading with live accounts, it is necessary to validate them first. However, many forex brokers allow you to deposit the money and begin trading without any validation process.
On the other hand, some people might ask you to verify the account and to do so, you need to address documents and upload Identity proof before you deposit any money and start live trading.
Trade-related differences between live account and demo account
Specific trade-related differences exist between demo and live accounts, resulting in many performance differences while trading. For example, when using a demo account for trading, no emotional commitment is evolved as you are not putting any real money at stake. However, when using a live trading account, the traders might experience a psychological block. The fear and worry of losing real money can be distracting and robust.
You will be surprised to know that trading psychology is regarded as one of the primary factors that significantly differentiate between live and demo accounts. As your money is not at stake while using the demo accounts, you can think clearly and become unemotional and rational. But, as soon as you start using live accounts, everything changes.
However, it is possible to get over these psychological roadblocks and train yourself to remain unemotional and rational. To overcome the transition period, you need to give yourself some time. It is recommended to start trading on live accounts by investing in some accounts and similarly practice for a while as you did with your virtual accounts.
If a person fails while trading with demo accounts, there are no actual losses. However, the trader might develop certain discipline-related habits, which might cost a lot of money during live trading.
Traders tend to increase risks or overtrade while trading in demo accounts, as no stakes, are involved. However, it would help if you kept in mind that such behaviors can have serious negative consequences as they plan to use live trading.
Execution related differences
There is a wide array of execution issues that account for performance differences between demo and live accounts. For example, a Forex broker does not require a price while using a demo account. However, as they are using live accounts, they might requote the prices often.
The dealing spreads and price feed of demo forex trading differ from live accounts. In a demo trading account, the broker might go for executing demo stop losses. However, there are increased risks of considerable slippage in real trading.
If specific broker errors arise when trading with a live account, it takes a good amount of money, effort, and time to resolve them as they reach out to the forex broker’s customer service department.
However, traders do not experience such a phenomenon as they trade with demo accounts. At times, brokers do not provide a real trading platform for demonstration objectives. It indicates that as traders use live accounts, they might require learning and acclimating to the specific live platform. The data feed is the primary reason for such a difference between live and demo trading environments. A broker must pay a separate fee to access the live market quotes.
In addition, a plethora of overheads, like the liquidity provider’s fee, make it more expensive. However, it is possible to open demo accounts free of cost. Hence, the forex brokers do not provide similar trading conditions and live feed in the demo trading accounts. Once you have practiced trading in a demo trading environment and it is time to move to a live account, it is recommended to go for a micro account initially. It will be helpful to them in understanding the real trading conditions.
In addition, it also provides information about the marketing conditions with the specific broker to the trader. As a result, these micro accounts have turned out to be the prime choice of traders for testing the potential forex broker before they start trading with the aid of a standard trading account.