Learn By Hands On Forex Trading: Demo Accounts Vs Mini Accounts
If you are new to Forex, you are likely overwhelmed by the sheer
amount of information you are finding about currency trading.
Although the concept of trading the currency markets is simple
to understand, the actual trading methodologies and
understanding of how, why and when trades are executed can be
hard concepts to grasp and fully understand. If you aren't aware
by now, forex trading is not without substanial risks.
There are several schools of thought on how a new trader should
progress from learning to actual live trading. In this article
we will discuss the best ways for a new trader to learn how to
trade the forex and make their first live trades.
To start out, I can not stress enough the need for hands on
trading. This is why you will often hear it recommended that new
traders start trading with a demo account. What is a demo
account? Many online forex brokers offer something known as a
"demo account" which is a fake account that you can trade until
you feel comfortable trading your own funds. Demo accounts
behave just like real accounts, the only difference is that the
money you are trading is not real and no actual trades are ever
executed.
The purpose of using a demo account if you are new to Forex
trading is to get you comfortable making trades and to help you
become familiar with the brokers trading platform. You can cut
your proverbial teeth so to speak without risking any of your
own funds. This makes demo accounts good for a brand new trader
who just wants to see how trading works. There are some
drawbacks however to using demo accounts to learn Forex trading.
The biggest downside to using a demo account is that you will
likely only be able to trade standard size accounts with a demo
account. If you intend to trade mini accounts, as many beginning
forex traders do, a standard size demo account is going to
behave differently than a mini account. Your margins are very
different for a standard account versus a mini account. If you
become accustomed to trading a standard size account, your
trading methodologies will show it. This is because the larger
margins offered on standard size accounts allow you to take
greater profits from smaller movements in currency prices.
The other major downside to trading with a demo account for
learning forex is that as a trader, you need to carefully manage
the emotional aspects of trading real money. Since a demo
account is fake money, detachment is easy to come by. Once you
start trading your actual funds, you might just find that your
tolerance for risk is much more conservative.
Ideally, as you
are learning to trade you are also learning how to manage your
risks most effectively.
So what is a beginning trader to do? What is the best way to
learn to trade the Forex, hands on?
Once you have read, studied, and completed any courses on Forex
trading that you may be taking, you are ready for probationary
live trading. The single best way to trade the Forex is to just
Do it. Now, this does not mean to jump in and trade a full size
account with real money, this would be an enormous risk for a
new trader and not a very smart move indeed. What you can do is
to find a broker that offers mini accounts. Mini accounts
typically start at $200 and typically give you 100:1 leverage.
That said, as of this writing, there is one broker (Easy-Forex)
that allows you to trade a live mini account for as little as
$25.
For less than you paid for any of your books, courses or
training materials, you can actually try live trading. You will
be amazed at how after just a few trades, the stubborn concepts
seem to start making sense and you begin to understand Forex
trading.
Now, if you do decide to begin your trading with one of these
tiny mini accounts, you should start by making several very
small trades. You should also be trading with the same system or
methodology that you are trying to perfect. Your profits will
likely only be a few dollars since you are trading on a small
margin. This is good, however because the reverse is true as
well, you are only ever risking a few real dollars. If you
happen to have a series of loosing trades and wipe out the funds
in your demo account, you can consider it the least expensive
education you could possibly get in actual forex trading. Much
better than loosing large sums of funds, and more realistic than
trading a demo account. Just learn from the experience, and
consider it a good deal on a valuable lesson.
Once you are comfortable trading your mini account, you can
always have it converted to a regular account (with an
additional deposit) if you choose. Overall, it cant be stressed
enough, the best way to learn the Forex is to have experience
with live hands on trading. This article showed you ways that
you can do this at a minimal cost and with the smallest amount
of risk.
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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest / trade in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading.
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