There are plenty of forex brokers that will happily take your business. But not all forex brokers are created equal. Trying out a demo account will enable you to make a more informed decision when choosing a broker.
What is a demo account?
Demo accounts are trading simulators or practice accounts that mimic real accounts, except that they are funded with fake money. It’s a great way to get a feel for how a trading platform works. Plus, if you’re new to investing, a demo account enables you to get used to the speed and intricacy of forex trading without incurring any actual risk.
How do you use a demo account?
The point of a demo account is to try out all the features that a trading platform has to offer, without actually risking any money in the process. Just sign up as you normally would, trade as you normally would, then, if you’re happy after your test-drive, you may decide that you’re ready to fund a real account, using real money.
This is the best time to practice higher leverage trading. If you’re going to make a mistake, make it with fake money!
What is a contract for difference?
Contracts for difference (CFDs) are investment derivatives that let you speculate on the price movement of investment assets, such as pairs of foreign currencies. You’re betting on how those currencies will move in relation to each other, but you don’t actually own the currencies you’re trading.
Even though you’re not putting real money on the line when using a demo account, getting to know the ins and outs of CFD trading will help you when it’s time to dive into the real thing.
What should I look for in a forex demo account?
- Find a regulated platform – Obviously, with demo trading there’s no risk of you losing your capital. Still, you’ll want to make sure that the trading platform on which the demo account lives is compliant with all the relevant regulatory bodies. That way, if you decide you like the way the platform works in demo mode, you can start trading with real money, safe in the knowledge that your platform of choice is fully regulated. In the UK, the Financial Conduct Authority regulates forex trading.
- Find a realistic platform – A good demo account should replicate a real-money account in as many ways as possible. We discuss some of the differences that are likely to arise in the FAQ section below. The fewer the discrepancies between a demo account and the real thing, the better prepared you’ll be to make trades with real money.
- Variety of payment methods – Again, treat your time trading in a demo account as an opportunity to scrutinise everything the platform has to offer. Pick a CFD platform that allows you to deposit and withdraw funds in a way that works for you, be that PayPal or credit or debit card.
- Suitable deposit and withdrawal limits – Exercising a sensible degree of caution is never a bad idea if you’re new to forex trading – which is why demo accounts make so much sense. If you’re a novice you may also want to put in a smaller deposit when making your first forex trades. Choose a CFD platform that suits your needs when it comes to deposit (and withdrawal) limits.
- Good reputation – Many CFD trading platforms have a long enough track record to rack up a healthy number of user reviews. These user reviews are a great way to gauge the quality of a platform’s reputation. Gauging the tone of media coverage and looking up the number of impactful awards won by that platform can also be instructive.
- Design and ease of use – One of the biggest benefits of trading with a demo account is that you get to figure out how easy a platform is to use before pouring in your hard-earned money. With so much competition out there, you shouldn’t have to settle for a poorly designed, hard-to-use trading platform.
- Variety of currency pairs – Seven currency pairs dominate forex exchanges, with the British Pound, US Dollar, and Euro among the most popular fiat currencies traded. Of course there are many more currencies around the world, about 180 all told. If you’re looking for more variety when you’re ready to progress beyond demo trading, look for a broker that allows a wider range of trades.