One of the main reasons why traders tend to use MetaTrader 4 demo accounts is because they want to get familiar with the trading platform or know how to trade without thinking of the risks that are present every time you trade in the live market. Other than that, check out these amazing benefits and also the downsides of trading.
Benefits of Demo Accounts
It Permits You To See The Risks Associated With Leverage
One thing that impresses new traders is the leverage. But, you must know that leverage is a double-edged sword that cuts you in two ways. It is true that you can make huge sums of money with it but it can also cost you your capital if you encounter a bad trade. You should know that professional traders are not even using leverage that is more than 5:1 but Forex brokers offer you leverage that can reach as high as 500:1. It’s for you to decide and it depends on the risk appetite that you have.
It Gives You A Better Understanding Of the Trading Platform
In the Forex market, there are so many things to know and understand. These things are quite overwhelming for new traders. You might even find it hard to understand your trading platform if it poses too many complexities. But with the use of a demo account, you can easily see how it works without thinking that your actions might affect your trades. You will learn how to place orders, configure things in your trading platforms or find the most appropriate contract size for you.
It Permits You To Create a Trading Strategy
If you are planning to trade currencies, then the most appropriate trading platform for you will be MetaTrader 4. MT4 is currently very popular among Forex traders and its popularity has been going around for years ever since it was first created in 2005. This trading platform also offers a demo mode that allows you to see live quotes across all markets. You also get to enjoy a virtual portfolio where you can see the live market conditions. You can easily analyze chart figures, price actions, correlations of currency pairs, the support and resistance lines, the market volatility and so much more. Therefore, a demo account is the best way to develop a trading strategy and test it before it goes live in the market.
The Downsides of Forex Demo Accounts
You May Develop Bad Trading Habits
When you trade in a demo account, you may develop a false sense of confidence. Most of the time, traders using demo accounts are having a tough time managing the risks associated with their demo accounts. Because they think that the environment is fake and there is no money at stake, they tend to take on more risks that can transcend when they start to use the real, live account.
There Is No Money Involved
Most traders tend to be more conscious especially since their hard-earned money is involved. But with demo accounts, where virtual money is being used to trade, they don’t seem to care even if they lose a lot. This habit can be brought by a trader when he is already dealing in the live market.