One of the reasons lose money trading forex is because they have a lack of trading experience. It's crucial you become acquainted with a platforms features and how to use the software before putting real money into your account.
Thankfully, almost every reputable forex broker offers demo or practice accounts. Here's how to take advantage of them.
Choosing the right platform
There are lots of different brokers, and most of the reputable ones are pretty much the same. But you do need to choose if you'll be just trading forex or whether you wish to trade stock cfds as well. You'll also need to choose if you want to integrate copy trading into your portfolio.
eToro: Offers a proprietary web based platform, great for beginners. Has stocks, forex and copy trading.
XM: Offers MT4 or MT5. Choose MT5 if you want to trade stock cfds.
Placing orders or opening traders, is probably the most important part of your trading practice. It's easy to make mistakes if you're not familiar with the software. And these mistakes could potentially be very costly. I've accidently opened trades with 50x leverage instead of 5x just because I wasn't concentrating. That could have potentially wiped out my entire account if the trade went south.
Getting familiar with the Charts
Some platforms don't include charts and so if your broker doesn't, you may need to either buy or use a free charting tool.
Get familiar with the charting tools. Try and overlay some technical indicators, just so you know how it's done. Overlaying your own indicators is a great way to understand what the forex pros are talking about in their analyses.
Pretend this is the real deal
This is the most important point of your forex practice account – treat it as if it was real. Don't go opening trades that you know you would never do in real life. It's tempting to also open really large trades, especially as most practice accounts give you thousands of dollars to play with. But it's important to open trades using amounts of money that you would be using in real life.
Experimentation is fine – for example you might want to play around with different leverage to see how it affects your profitability. But leading up to opening a real account, I recommend spending a week or two trading like you would in real life. If you're able to make a profit under these conditions, then you might be able to do the same thing with a real account. But if you're losing money, it's a good indication that you are nowhere near ready.
Use your practice account to build a trading routine. Where will you be getting your economic news? Will you be using signals? How will you trade each day? What strategy will you use? These are all questions you should answer using your practice account.
Here is a checklist of the things you should complete in your forex practice account before moving on to a real account.
- Open and close a trade at the current market price
- Set an order for a projected market price
- Set a stop loss and take profit
- Change the lot size (if available on your account)
- Change the leverage (if available on your account)