So you have decided to enter the world of forex trading. You've chosen your preferred method, most likely an automated Expert Advisor type software package and you have researched which software you want to purchase. What next? Well you have two basic options. Option one, jump straight into live trading and see what happens. A natural response if you are feeling optimistic, and why shouldn't you? After all the software works doesn't it? All those results that the vendor showed you demonstrated that perfectly. Well actually, most of the results you are shown are probably the result of back-testing. This doesn't necessarily make them wrong or inaccurate but we must understand that the trading rules have probably been specifically optimised to ensure the best possible results for that particular data set.
The second option is to open a demo account with your broker. What this allows you to do is effectively test drive your chosen software without the risk of losing any money. The first thing to recognise is that a demo account is a simulation of the real thing, and to make your experience as realistic as possible you need to look for three key components. The first point of note is to ensure that the platform that hosts your demo account of choice is compatible with your software. An obvious assumption perhaps but it is important that you get into the habit right from the beginning of taking nothing for granted and making sure you do not become the victim of costlier assumptions farther down the track
Secondly, you want to look for an account that allows you to trade on margin. This is the only real way to trade as an individual trader, using your own sources of capital, so it is important that you get a feel for this. It can be a daunting experience for some to gear their investments into a much larger trading position. Start small and always have sufficient funds to cover your position. As your funds increase, you can increase your position to match and begin to enjoy larger and larger profits per transaction. Get into the habit of respecting your broker and ensure you always respond to losses quickly by making sure that your position is always covered. This means having enough cash to pay your debts.
Thirdly, you want an account that allows you to trade using real-time exchange rates. Whilst some might argue that it doesn't matter exactly what the exchange rates are but how you respond to them that matters, my personal view is that the whole point of running a demo account is to see how well you would have done in as real a simulation as possible.
Opening a demo account is a great way to test drive your software before committing to live trading. However, a word of caution must be noted here. Demo accounts are only simulations in the same way a flight simulator is to a trainee pilot. It is a whole different ball game in real life. That said getting used to margin trading and evaluating your trade set-up rules in real-time exchange rate scenarios is a valuable experience, and for my money a great way to ease your self into a profitable forex trading career.
