Forex Practice Accounts

There are two broad classifications for forex practice accounts: those to use, and those to avoid. Whereas you might have thought all practice or demo accounts were the same, they most certainly are not.

Testing the market vs testing the platform
The biggest difference between the two types of practice accounts comes down to a simple question, what you want to learn. Are you interested in learning how a particular currency trading platform works? If so, any type of demo based on that platform will work just fine. But if you’re interested in testing a trading platform and trading strategy, then you might be better off with a demo account based on real data.

The difference between the two can be indistinguishable. Simulated trading desks allow future forex investors to buy and sell fake lots of currency in a fake market. That is, the prices of currencies are not based on real market events, but instead on a pre-created game that is designed to mirror the foreign exchange market.

Simulated market games are not to be used for backtesting, or forward testing, and should never be used to obtain live currency quotes. Because the data is simulated, it is not the result of active markets, nor is it to be interpreted as historical data for currency pairs. Unfortunately, many future forex traders get excited with simulated markets, only to begin backtesting and working on new trading systems before realizing that all the data is worthless in the real world.

On the other hand, demo accounts based on live, real trading data are quite literally “the best thing since sliced bread” for the beginning trader. Because these accounts do follow the markets accurately, all systems that are back and forward tested produce very valuable data. Thus, you could use a demo account to test strategies for a future live account and be confident in the backtested results.

Where to get a real demo account
To find a real demo account, with real data, you’d be wise to stick the brokerage firms that are most tightly regulated—those that operate within the United States. Internationally, game accounts—those based on synthetic market data—have been questioned as marketing schemes. Since the market activity is made up by a computer program, some regulators assert that they give traders a false sense of confidence. What would you do if you had traded profitably on a demo account that you thought had used live data? You’d probably think that you’re perfect material for forex day trading!

The best demo accounts are those that are found embedded in software. The MetaTrader 4 platform, which does use real data, allows for investors to sign up with a demo account directly through the software. Thus, investors can be sure that they’re getting real data, and that any results of trading this demo account can be correlated directly to the real foreign exchange market. The MetaTrader 4 platform, being one of the most popular, is also a chosen platform for many of the largest forex brokers based in the United States.

Transferring to live
Because a great deal of brokerage firms uses MetaTrader 4, you can expect a seamless transfer to a live account. Simply input your new credentials from your live account, make a deposit, and sign onto the live account via your desktop MetaTrader 4 and start trading!

The transition to live, trading couldn’t be easier. In fact, with a number of brokers allowing investors to open both a live and demo account under one log-in name, moving from account to account is as easy as switching between the two in your MetaTrader 4 software.

Related Information