Starting Forex traders are advised to always start with a DEMO account called a practice account. Such a DEMO account works exactly the same as a real account, but without real money. A fictitious trades balance is used where you can then trade on the actual prices.
In this article we look at how to create such an account, which you should pay attention to and point out the two main pitfalls when using a DEMO account.
Below you can see an image of the Meta Trader 4 software that you use during trading. Whether you use a real money account or a DEMO account, the environment is exactly the same. You only use other login details to log in to the DEMO account.
How do I create a DEMO account?
Creating a DEMO account differs from broker to broker. At my broker (EXNESS) you first create an ordinary account and then you can create a DEMO account.
You can also create several DEMO accounts. That can be handy later on, if you want to try different strategies, in the beginning I would just keep it at 1 DEMO account if I were you.
What do you pay attention to when creating a DEMO account?
Creating a DEMO account is done in the same way as creating any other account on a website. Sometimes you are asked some extra questions about your experience as a trader (for protection) and you will always have to confirm your identity by a scan or photo of your identity document.
For many brokers, a DEMO account is simply part of your account with a broker. By creating an account you enter into a commitment. Later, the personal data you use for your DEMO account will also be used for your real-money account. So make sure that you enter the correct details.
Forex trading is going in large volumes. To trade on the Forex market used to be a strong capital. In order to make the Forex market available to traders with a small investment, levers are also used.
Marbles like leverage
Each marble has its own value. With Forex a standard lot is 100,000 units, but there are also smaller lots.
Do you remember your time at the ball? Then you will undoubtedly remember that a marble always had a certain value: for example, 1 marble was worth 10, 50 or 100 points.
This is how the lever actually works, only in Forex the marbles are called a ‘Lot’ and a standard lot is 100,000 units. There are also lots that are worth less, for example 10,000, 1000 or 100 units. Distinction between these values is determined by the type of account you create. Most brokers offer two or three different types of accounts.
In the course Forex As a Hobby I advise traders to create a MINI account at EXNESS. With other accounts, the options are less favorable or the minimum deposits for a real-money account are considerably higher.
Levels are used when trading on the Forex market. Just back to the example with the marbling ….
Trading is done in large volumes. With a small amount, those volumes simply can not be paid. Your broker applies a lever, which enables you to trade 100,000 units, for example, with an amount of 1000 euros. So your 1000 euros is worth 100,000 euros on the Forex market.
In theory, you borrow an amount from the broker. No worries, we are still talking about a DEMO account, so that costs you nothing. As soon as you start trading, you pay the broker for each trade a fee for using the lever. But that is so for later.
Use low leverage
Now you can also adjust your leverage with a DEMO account. The greater the leverages, the greater the volume with which you can trade.
Starting traders would be wise to keep this leverage as small as possible. This prevents you from trading with too high volumes and therefore also runs a greater risk of losing large amounts. Now this will not be a problem with a DEMO account, but as soon as you start trading with real money, of course!
Finally, the tip to make a screenprint of the different passwords you have to choose. With EXNESS, three passwords are used for each account. One for the account, one for access to the Meta Trader 4 software and an investor password. With such an investor password you can give others access to your trade account, without them being able to do anything.
The support from EXNESS will always ask you for the investor password that comes with an account. If you do not know that anymore, they can only answer general questions.
Does a DEMO account cost me money?
No, creating a practice account is free with every broker. It allows you to try Forex trading without any form of investment. You do not have to deposit money and there is no risk. You can try Forex and do not like it, then there is no man overboard.
Beware! A DEMO account is an excellent way to try Forex. However, use your DEMO account in a sensible way. Two known pitfalls when using a DEMO account incorrectly, you can read in this article.