Demo trading are simply simulations; They are not “real” and “don’t exactly replicate Live Trading conditions”. Hence, they are termed ‘Demo-accounts or practising accounts..
Aspiring traders can never or rather would find it difficult to develop the necessary mental skill to succeed in real-world trading as long as they cling on to demo-trading for long. The truth is that Demo trading would not teach you so much of live trading, where your goal is to trade consistently and make real money. It is said that consistency makes a trader.
In as much as both newbies and experienced traders routinely use demo accounts to try out new brokers and trading strategies,over dependence on it is the bane of most newbies and not encouraging if you want to develop the mental skill required for consistency in Forex trading as a business,due to the under listed reasons.
1. REAL TRADING CONDITIONS MAY DIFFER:
The reality of trading can be quite different especially during major economic news releases or news events announcements.
2. REQUOTES MAY BE LESS FREQUENT IN DEMO-TRADING:
In order to attract new clients to their demo trading, some brokers might reduce or eliminate requotes from their demo-programs; whereas requotes are common in Live trading situations.
3. EMOTIONAL RESPONSES ARE DIFFERENT:
Successful and consistent trading involves learning to manage ones emotions accordingly.It has been observed that the emotional ups and downs we experience on a live account doesn’t exist in a demo account. The abilities and confidence one develops in a demo account will not help you instead it would hurt you adversely in a live account. Hence,the need to start small and get used to the psychological aspect of trading which is very vital.
4. POOR TRADING HABITS:
Some traders do not learn their lessons when demo trading, because it involves virtual money.They end up developing false confidence and abilities under false circumstances
5. EXCESSIVE USE OF LEVERAGE:
It has been observed that most Demo traders indulge in the use of excess leverage. when such behaviour are carried into trading Live account, it leads to nothing but trade disasters.
Most Demo traders are said to be trigger happy. Simply by entering numerous trades excessively thereby over-trading. This could render them unsuccessful when they move to Live trading. so the earlier it is avoided the better.
7. ORDER EXECUTION TIMES MIGHT BE FASTER:
Since Demo account does not involve real money,this might result in faster execution of trades unlike real accounts which depends on market conditions, especially during various economic news releases or announcements.
In view of the above,it is strongly advised to start with small capital as low as $5, as well as small risk levels and as soon you gain live trading experiences, one could gradually increase his/her lot size.
Secondly,accept that Forex is a business which should be treated as such, that losing is part of trading and that with proper money management,one could grow gradually as well. When we start small one should be prepared to grow accordingly, be able to develop more confidence,ability and faith in ones strategy so as to grow ones account in the long run.
Finally, going into Forex market with the right mindset is very vital to treating Forex as a business and a career over a long period of time. The passion for trading must be developed in order to be able to persevere and get used to the psychological aspect of trading as a whole.