Teacher and consultant to the futures industry since 1983
Teacher and consultant to the
futures industry since 1983
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What use is a forex demo? Trading is risky, so any tool that helps us in reducing or even eliminating the risk is welcome. On the other hand, the method employed must reduce the risk, it must not just appear to do so. The demo trading strategy used by some traders as an introduction to forex trading is one such example. It appears to teach, but it in fact gives the wrong lessons, and results in faulty perceptions that are highly damaging in the long term, if traders can survive the consequences of loss and disappointment in the short term In addition, one can’t assess a forex broker through demo trading, and even the simplest forex broker ratings have a greater claim to validity as a mirror of future performance. In this article, we’ll take a look at this subject with the goal of showing why demo trading is a useless approach to understanding forex. A demo trading account grants us unlimited capital (although in chunks of several tens of thousands usually). We are then free to apply any method, test any strategy that we would like as we make use of live market data and apply our approach at no risk. The demo account seems very much like a ghost trader: you make decisions, open and close positions, manage profit and loss but none of your actions is perceived by the market, and none of your choices is reflected in your net worth. This has two consequences, first that demo trading is safe, but second that it is no substitute, in any way, to actual trading of the markets. Risk is only unnerving and problematic because it can be harmful. And forex trading is only difficult, when it is, because it is a risky endeavor. The hardest aspect of forex trading is not the creation of forex strategies, analysis of markets, or the prediction of future market trends. The first two can, and is done by anyone, and there’s not even a shade of consensus as two what makes a basically valid forex strategy more valid or potentially more profitable than an another. Every trader has his own approach, while the last, that is the prediction of short-term market action is a foolhardy endeavor, to say the least. So the most important, and crucial variable that is subject to the management of the trader is risk. A trader must be a risk manager. And that is what makes demo trading useless. You can make many conjectures and hypothesis in demo trading, but all will crumble before the reality of risk in live trading, as soon as you get the exposure. Worse yet, if you happen to from any misconceptions about the validity of your strategy based on demo trading, painful lessons may be unavoidable. A forex demo is a useful tool for learning the basic concepts of trading, and for understanding what a trading software is, what indicators are. You can’t learn how to trade with a demo account however, and that is the crucial lesson that all of us must keep in mind at all times.
Bryan Sayers, Get in touch with us by email.
THERE IS RISK OF LOSS IN TRADING
FUTURES... LOTS OF IT!!
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