Part 1 - Are Forex Demo Accounts Realistic?
Despite their impressive demo or practice trading accounts, many traders struggle to make profits in live trading. It is difficult to determine if a broker offers the same trading platform for both a demo and a true account. This is a rare situation.
This could indicate that brokers may manipulate demo accounts to lure traders into the forex market. Let's see if the common trader can duplicate the demo performance using the 000 accounts. This requires first reviewing the similarities and differences among demo accounts and real accounts.
This analysis will answer the question of many people about the realisticity of forex demo accounts.
Differences between Demo and Real accounts
Demo accounts often have the same basic features as the live accounts platform. Brokerage firms allow clients to access the automated trading features and install different types of indicators from the demo account platform without restrictions. It will be clear that both platforms have the same basic functionality, and there are no technical differences.
The demo account platform may not display the same exchange rates as the 000 account platform. You may also notice that the spread within the demo account will not change during important news releases such as the CPI or quarterly GDP Growth. Spreads in real accounts will increase during market volatility. This means that the profits you make from releasing important news may not be the same as those made on your demo account.
Real trading can also lead to traders losing the opportunity to enter the market at a specific level due to price jumps. We will also notice that currency pairs can move randomly or in zigzag ways. Stop loss levels can be reached when these price jumps occur, something you won't experience when trading demo accounts. Real accounts can be exposed to early exits and lower profits than demo accounts.
Slippage is another common phenomenon in the interchange markets. This is due to competition among retail brokers for liquidity from banks and major institutions. It can lead to rapid changes in the prices offered by traders due to rapid market movements. This can lead to the trader being unable to reach their target price levels when buying and selling. A trader might also encounter partial order execution. For example, 3 of the 10 open contracts in a pending order are executed. This cancels the remainder of the order and updates the value to reflect recent changes. These drawbacks are not common on demo accounts. You may be able to execute any number of contracts at the lowest price.
Even if an account trader uses the Market Execution mode rather than a Pending Order, it is not guaranteed that the values he sees are executable. The MT4 platform's order window displays the following warning message: "Alert!" The market conditions will dictate that the transaction is executed. This could lead to a significant difference in the price requested.
You will need to invest time and money to practice real trading. This is because the same broker, who performs flawlessly while using a demo account, will require you to pay a portion of your trading capital.
The bottom line is that even though you use the same trading platform as the demo account, it doesn't necessarily mean that you will have the same conditions for liquidity, spreads, spreads, and slippage when trading on a real account.