Part One : Are Forex Demo Accounts Realistic?

Many traders find it difficult to form profits when trading in their live accounts despite the impressive performance they achieve in practice or demo trading accounts. it’s difficult to check a true and a demo account whether or not the broker offers the identical trading platform for both accounts (which is mostly uncommon). Does this mean that brokers are manipulating demo accounts to entice traders to speculate within the forex market? let’s examine within the next lines whether the common trader can replicate the demo performance with the 000 account, which needs first of all to review the similarities and differences between the platforms of demo accounts and their counterparts used with real accounts. This analysis will help us answer the question on the minds of the many about how realistic forex demo accounts are.

Differences Between Demo and Real accounts

The trading platform offered for demo accounts usually carries most of the fundamental features that are available on the live accounts platform. The brokerage firms also allow the client to use the features of automated trading and install various sorts of indicators on the demo account platform with none restrictions. Thus, it will be said that there are not any technical differences between both platforms at the amount of basic functionality.

The exchange rates displayed by the demo account platform might not necessarily match the rates shown on the 000 account platform. you may also notice that the spread will remain stable within the demo account even during the discharge of important news like the CPI or quarterly GDP growth. In real accounts, spreads will widen during times of market volatility, which implies that the profits you may make during the discharge of this important news are going to be but those achieved on the demo account.

Also, it’s common during real trading that the trader often loses the chance to enter the market at the specified level thanks to price jumps that appear from time to time. Moreover, we are going to notice that the currency pairs move randomly or in a very zigzag path. These price jumps can often result in hitting stop loss levels, which you will not often encounter when trading on a demo account. For of these reasons, real accounts are exposed to the danger of early exit and reduced profits in comparison with the results of trades within the demo account.

Slippage is additionally one among the common phenomena within the interchange markets, which is attributed to the competition between retail brokers for liquidity provided by banks and major institutions, which can cause a rapid change within the prices offered to the trader as a results of rapid market movement. These cases of requotes mean that the trader might not be able to reach the target price levels while buying or selling. The trader may additionally encounter cases of partial order execution, for instance 3 out of 10 open contracts within the pending order is also executed, canceling the remaining part or updating the worth to reflect the recent changes. you may not normally encounter these drawbacks on the demo account as you may be able to execute any amount of contracts at the last quoted price just.

Even if a true account trader chooses to use the ‘Market Execution’ mode, rather than a pending order, there’s no guarantee that the value he sees on the screen are executable. that’s why the order window within the MT4 platform displays the subsequent warning message “Alert! The transaction are going to be executed in step with market conditions, and thus a major difference from the requested price may occur.” The trader may experience positive or negative slippage, which could be a problem that he won’t encounter when trading on the demo account.

When practicing real trading, you will end up having to spend a part of it slow and money just to unravel the issues caused by the errors of the broker, which is that the same broker whose performance are perfect while using the demo account.

The bottom line is that using the identical trading platform with the important and demo account doesn’t mean that you just will encounter the identical conditions of liquidity, re-quotes, spreads and slippage, as things are completely different when trading on a true account.