Differences Between Forex Demo and Real Accounts

Overview

1. Brief Introduction

2. Forex Demo Accounts

3. Forex Real Accounts

4. Differences Between Forex Demo and Real Accounts

4.1 Trade-related Differences

4.2 Execution-related Differences

5. Tips for Forex Trading

6. Conclusion

1. Brief Introduction

The difference between a forex demo account and a real account is essential to understand. Only in this way can you understand exactly what you have gained, what you still need, and how to proceed when you begin to trade in a demo account.

Significant differences between forex demos and real accounts are trade-related such as trading psychology, trading strategies, overtrade/number of trades per day, the performance of traders, targets and hidden fees, as well as execution-related including execution speed, prices, requote price, spreads, liquidity, slippage and stop loss orders.

2. Forex Demo Accounts

Forex Demo Accounts: a free trial forex account that allows traders to practise trading with virtual money. It is not only designed for beginners to practise trading in a risk-free environment and build up experience with trading but also for advanced traders who want to test their trading strategies and explore the offering of a broker before registering a live account.

Demo accounts are available on almost all platforms with most brokers. The demo account can help you learn how to closely watch the market. As well as providing a better understanding of how the forex market works without exposing yourself to risks, it allows you to get a better feel for how it works. Additionally, you can learn about the latest trading features as well.

To open a forex demo account, you need to register on the site, install the trading terminal on your computer, and apply for an account.

3. Forex Real Accounts

Forex Real Accounts: a live or real money forex trading account. In this account, real money is deposited for trading and profit is earned in real money. You will lose or earn real money in this account, regardless of what you may lose or gain.

Almost all brokers offer real money accounts as well. Make sure the broker you choose is regulated.

The validation or verification process is required for the opening of an account. You may be asked to submit proof of your identity, your address, or other documents related to your account by some brokers. Some forex brokers, however, do not require a validation process for a deposit. If possible, open an account with a broker who validates their accounts in real money.

4. Differences Between Forex Demo and Real Accounts

There are many differences between trading on forex demo and real accounts. The differences can be divided into two categories: trade-related differences and execution-related differences. In the below parts, we will discuss the two categories in greater detail.

4.1 Trade-related Differences

1) Trading PsychologyTrading psychology plays an essential role in trading. In addition to your mental condition, it is also important to consider the trading environment. The experience of trading in a demo account versus a real account is different for most traders, even though the prices are essentially the same, and you can trade profitably in both. In particular, it is stress-free to trade with virtual money and there is no need to worry about profit or loss when you use virtual money.In contrast, trading psychology and risk management are overcome by fear and greed when you trade in a real account. Therefore, real money accounts are more stressful as compared to demo accounts.2) Trading StrategiesWhen you trade with a demo account, you know you won't lose anything. Thus, you can test different strategies to see which one best suits your trading style. Ultimately, you will come up with one strategy to implement on a real account.

The real account, however, does not allow you to test out different strategies. As a result, your account will be wiped clean. When you trade with real money, you have to stick to one trading strategy.

3) Overtrade/Number of Trades Per Day

There is no limit to how many pips you can trade on a demo account. Different EMAs can even give you more than 100 pips per day.

Nevertheless, when overtaking a real money account, you need to consider capital leverage and other factors. There are usually no more than five trades per month for most day traders.

4) Performance of traders

Generally, in the case of psychology and the number of trades is different, the performance of traders will be different accordingly. A demo account always has a higher profit ratio than a real money account, because you can overtrade and set a high-risk reward ratio in the demo trading environment.

Trading with real money, on the other hand, is bound to limit your profits. A person's skill set, capital, and risk mitigation abilities can determine how much profit they can make.

5) Targets

In contrast, real-money accounts require a proper target setting. The trader is very aware of the right time to enter into or exit a trade. They set specific average profit-making goals.

There are often no specific profit targets set on the demo account by traders. They know they are free to trade, lose and earn. As a result, they rarely set a target when to stop trading.

6) Hidden Fees

In demo accounts, the brokers' price structures differ from those in real accounts, including deposit, withdrawal, overnight fees, rollover, margin fees, etc., so the overall fee experience is different.

It is also important to keep in mind that all profits in your demo accounts are gross. Your deposits to your account and the base currency you will use in your real account will not incur withdrawal costs or currency exchange fees - or even taxes.

4.2 Execution-related Differences

1) Execution Speed

Traders do not have to deal with counterparties or broker liquidity or volume differentials in demo accounts because they are a reflection of what is happening in the real trading world. Thus, orders made in demo accounts are usually executed almost immediately. Just simply click it and you will get what you want.

On the other hand, retail traders have to compete against thousands of other traders who are trying to make money when it comes to real trading accounts. Depending on the market conditions and the operations of your forex broker, execution can be slow.

2) Prices

Prices may be delayed by a few minutes in demo accounts while most brokers offer real-time prices in real accounts. Demo feeds still reflect market prices from the live feed, though sometimes they are delayed due to the different price feed.

3) Requote Price

Demo accounts do not have direct access to the interbank market, so brokers may not requote prices. In real accounts, however, requoting is common. Your broker cannot execute your order at a specific price when the market is moving fast.

4) Spreads

In forex demo accounts and real accounts, broker spreads are different. The spreads on demo accounts are typically smaller and lower regardless of the real market conditions. The majority of brokers use standard spreads when marketing demo accounts to avoid misleading clients.

As a result of the interaction between buyers and sellers, spreads in live accounts are determined by variables such as volume, volatility, and time of trading. Every moment they fluctuate.

Demo accounts sometimes fail to replicate the spread structures of real accounts, even when both platforms use the same spread conventions. Most forex brokers tend to offer separate data feeds for demo and real accounts.

5) Liquidity

Demo accounts are not prone to liquidity problems because traders rarely learn what causes them.

The traders, however, attempt to stay updated about current market conditions when trading with real money. Live trading involves real counterparties and there must be a buyer for a position if you wish to sell it. Liquidity is sometimes tight, causing brokers to requote.

6) Slippage

Since the broker has nothing to lose, demo accounts can keep your orders, you enter and exit at the exact price you see.

However, in real accounts, slippage can happen. Market orders or stop or limit orders you have already entered at a specific price can sometimes give you a different entry or exit price than what you see. The reason is that brokers have to deal with liquidity and third parties to fill your trade order.

7) Stop Loss Orders

When you set a stop-loss order on a demo account, the broker may execute it as you specify. But in a real-money account, your broker may delay your stop-loss through slippage. They can certainly reduce the speed at which the server executes stop-loss to the point where you want it.

5. Tips for Forex Trading

Tip 1

Don't work with the deposit, which you can't risk. In other words, It is not worth risking your financial situation or your well-being if you cannot afford it.

Tip 2

Be careful not to be impulsive at work. For whatever reason, if you feel inadequate and upset about something, you should not work with a currency because it can be costly to you financially.

Tip 3

Keep an eye out. There are a lot of forex scams out there that may get you. If you cannot be sure if the broker is regulated, use the demo account first.

6. Conclusion

To conclude, as the differences between forex demo and real accounts aforementioned, we can get the knowledge that both forex demo accounts and real accounts have their benefits and drawbacks.

Some traders will choose to open micro or mini accounts with a very small amount of actual funds rather than funding their entire trading account. It allows them to test out the forex broker or trading strategies in a live trading environment without having to risk their main account funds.