Most of us know that the forex market is a financial marketplace where one currency is exchanged for the other at an agreed market value. The forex market is not limited to traders of certain expertise but to traders of all skill levels. It’s a meeting place for the sale and purchase of foreign currency among traders across the globe. Experienced beginners and traders with average expertise are actively involved in the acts of forex trading and follow a number of strategies and tools to polish their skills. But the question is, how are some traders exceptionally better than others? The answer is simple: practising different strategies over a certain period. There is no denying that forex trading requires a deep understanding of the working of the market and years of expertise.
Experienced traders directly execute trades on live trading accounts, whereas the majority of novice and less experienced traders use the demo trading accounts for practising strategies before implementing them on live trading accounts. The difference is simple, a live forex trading account involves the use of real money, whereas a forex demo trading account involves the usage of virtual funds to practise various trading styles and methods before execution on live accounts. The demo trading account resembles closely with a live trading account in all aspects except for one, real money. This article will discuss the difference between the two and how these accounts can benefit a trader in the long run.
What Is A Live Forex Trading Account?
In forex, a live trading account is an account type that facilitates the exchange of foreign currency for the sale and purchase at an agreed price among various traders. A live trading account shows various estimates of the forex market happening in real-time and displays real prices of the preferred currency pairs. A live account involves the usage of real money that a trader decides to put into a particular trading activity. Live trading accounts offer numerous features depending on the broker of the trading platform and the initial deposit.
What Is A Forex Demo Trading Account?
A forex trading demo account, also known as a demonstration account, is a virtual trading account that resembles a live trading account. A demo account is mostly used by novice and less experienced traders to practise various trading strategies and methods before executing them on a live trading account. A forex trading demo account consists of virtual funds that a trader can use to test strategies without risking his own real funds. All necessary information that a trader might require is present on a demo trading account. Forex trading demo accounts are a great way of learning and practising before jumping into real trade. Sometimes a demo account provides insight to a trader into whether he should open a live trading account.
Differences Between A Live Trading Account And A Demo Trading Account
Before jumping into the ocean of trading, it is very important to have a clear idea about the difference between a live trading account and a demo trading account. These differences will help you to clear your mind and give you the insight to make informed trading decisions:
- Trading Psychology- A trader’s psychology can greatly impact his trade decisions and execution. Psychological factors such as fear, doubt, anxiety, anticipation and euphoria are closely related to a trader’s performance. In the case of a live account, all these emotions are heightened to some extent, as live accounts involve the usage of real money that can have a major influence on a trader’s strategies.
However, it only sometimes happens when using a demo account, as real money is not involved; therefore, the risks and fears associated with real money are hardly present. Since your money is not at risk, you can think rationally and make good decisions.
- Re-Quote- During instant execution, sometimes a broker fails to confirm a trade at a specific ask price by the time a trade is received. This compels the forex broker to re-quote a new price to the trader. This phenomenon is very common with a live trading account, as brokers usually re-quote their prices to traders. However, a demo account is an exception, as brokers do not re-quote prices on a demo account. Re-quotes generally happen in highly volatile markets by releasing an extremely impactful economic indicator.
- Spreads- In forex, spreads usually refer to the difference in prices of a currency pair or two similar assets. Tighter spreads are usually considered good and favourable for a price movement. In a demo trading account, spreads are usually tighter, which is not the case for a live trading account, as live spreads in real trade are influenced by market liquidity and broker offers.
- Application Of Stop-Loss- Implementing stop-loss while using a forex trading demo account appears comparatively easier than a live trading account. Live trading accounts are susceptible to a higher risk, and even after applying a stop-loss feature, a trader still needs to be cautious not to lose out on most of the invested money.
- Over-Trade- This is the most common mistake that traders make. A trader will not suffer any losses even if he over-trades on a demo account, as after losing funds on one account, he might move on to set up another one. A live trading account differs in this regard as the risk of over-trading can have a huge impact on a trader’s profits, and he might slip into potential losses.
Word For The Wise
Forex trading is easier than it might appear to some individuals. I agree that specific technicalities and advanced attributes are hard for a layman to understand, but as they say, “every master was once a beginner”. A thorough research and understanding of the basics of the forex market can make a huge difference in the long run. You can go through various inspirations and read about how some of the greatest players of the forex market changed their lives and those around them to a great extent. There is nothing like a risk-free strategy when it comes to forex trading. But, of course, if you want to make the best out of your trading skills, I suggest you first start using a forex trading demo account that’ll help you to get an insight and help you analyse if forex trading is actually meant for you.
