Once you have opened a demo account with a Forex broker, you will then be provided with a generous dummy balance that can be in the region of $50,000. However, you must realize that with such an amount you can readily make profits by utilizing techniques such as excessive leverage and wide stops. In addition, you can trade without the fear of any real financial loss. For instance, should you lose your entire dummy balance, then you can easily replace it with another.
Unfortunately, you will not enjoy such luxuries when you progress onto live-trading. For example, you will now be totally responsible for protecting your own limited budget which you will not be able to squander so readily. Should you do so, then it is you who will have to make all the efforts to replace it. Otherwise, you will have to cease trading altogether. As such, you must realize that demo trading can foster a sense of over-confidence in your trading abilities that will be extremely dangerous to transfer onto live conditions.
However, you can use demo trading to perform a number of important tasks, but you must do so in the correct way. For example, you can use it to evaluate the performance of your Forex trading strategies, but in doing so you must strive to stimulate live conditions as closely as possible. You can achieve this by using all the features of your Forex trading strategy in exactly the same way as you intend to do when you go live. In contrast, should you just trade your demo account in a lackadaisical way, then you could well experience severe financial and emotional difficulties when you progress onto real trading.
You must understand that you will only be exposed to weak psychological forces during demo trading because you are under minimum financial stress. For example, you will not experience the levels of fear and greed that you will do when live. In essence, demo trading will invoke very few of these critical emotions unless you can stimulate live trading as accurately as possible.
You can attempt to overcome these problems by selecting a Forex Broker who will allow you to open a micro account with just $25. You will then be able to live trade, but risking a minimum of 10 cents a pip. Consequently, this solution would allow you to endure the emotions and psychological influences of full live-trading, but at minimum capital risk
