Getting started as a trader can be overwhelming. Whether you’re trading forex, precious metals or cryptocurrencies, there are many things that you have to learn as a beginner. Luckily, you can start practising how to trade using a demo trading account.
A demo trading account, which is sometimes referred to as a paper trading account, is one of the first places you should start your online trading journey. Developing new skills and learning how the markets function will require substantial effort. Not to mention choosing the right broker, finding your way around a new trading platform and other tools you need for analysing the forex market.
To overcome these challenges and truly grasp the technical side of the forex market, using a demo account can be a great opportunity. Unlike most cryptocurrency exchanges and stock trading platforms, most, if not all, forex and CFD brokers offer demo accounts, including Scandinavian Capital Markets. We welcome any trader to open a demo account before committing to a live account. Using demo accounts is completely free, and it’s rare for brokers to restrict how long you can use them.
A demo trading account lets you try out different tactics and see what works best for you. In this guide to demo forex trading, we will discover all the benefits that demo accounts can offer you and see why you should open a demo account.
What is a demo account?
As you might have already gathered from the introduction, a demo account is a type of trading account offered by the majority of the forex and CFD brokers, allowing users to trade without risking any of their money.
When you create a demo account, the broker provides you with a certain amount of virtual balance. You are allowed to trade with this money and try out anything you want to without worrying about losing money. When you lose all the money in the account, most brokers will top them up with more virtual funds.
While demo accounts are not intended to make profits, they can be great for practising and developing skills and gaining a better understanding of the market. Demo accounts are especially important for beginner traders.
As a beginner, you might have a lot of questions about the markets you want to trade, whether it’s forex, cryptocurrencies or commodities. Without actual trading experience, it can be very hard to understand how the market works and put the topics you’re studying into context. A demo account can come in very handy in such situations, offering you the opportunity to experience market conditions without any financial obligations from you.
Who should use demo trading accounts
It is a common misconception that only beginner traders are using demo accounts. In fact, many experienced traders have demo accounts opened with brokers as well. You might wonder, why would an experienced trader need a demo account? Well, there are several reasons for that. One of the most common reasons is testing out new trading strategies or trading bots. Some traders focus on optimising their trading strategy for just one or two instruments but may continue developing and testing their strategy for other trading pairs alongside their live strategy.
The main reasons for using demo accounts are:
- Test how different trading platforms work
- Practice trading and developing skills
- Understand the offerings of the broker
- Test different trading strategies and expert advisors
- Test different brokers’ trading conditions
Test how trading platforms work
One of the biggest advantages of using a demo account is that it gives you access to the trading platforms offered by your broker of choice. Once you open a demo account, you will download the trading platform and see which one fits your needs the best. For example, Scandinavian Capital Markets offers two trading platforms: MetaTrader 4 and cTrader. You can open a demo account on either platform.
Choosing the right platform is a very important early step towards getting started as a new trader. You will spend much of your time using the trading platform for analysing the market and opening and closing orders. Thus, it is very important to choose a trading platform that is comfortable for you.
Using a forex demo account, you can get used to the way trading platforms work, find everything that it has to offer and become comfortable using it.
Another huge advantage of demo trading is that you are getting the chance to experience the actual market conditions without having to risk any of your real-life funds. Demo accounts perfectly resemble actual market conditions, with only one difference – you don’t have to risk any of your own money. Once you run out of the virtual cash provided by the broker, you can ask for more through customer support for further practice.
Practice trading with a demo account
Being a skilful trader and knowing what to do in stressful situations is a very important step towards success in the forex trading or cryptocurrency trading market.
Practising trading is one of the most common reasons why people use demo accounts. Once you open it and download the trading platform, you get the opportunity to open and close positions, adjust them, and see how your ideas would play out in the market.
You can also learn how to react to quick and unexpected changes in the market by using a demo account. This can help you become more successful at trading, regardless of the products you choose to trade, and once you start trading with your actual money, you can be sure to have enough skills to survive unexpected price swings in the market.
Even if you’re not primarily interested in trading forex, brokers like Scandinavian Capital Markets offer other instruments you can practise trading on the demo account. For example, you can practise trading cryptocurrencies with a demo account.
Using demo account as an experienced trader
As we have already mentioned above, the demo Forex account is very frequently used by experienced traders. Although there are some who believe that demo accounts are specifically designed for beginners, this is not true at all.
Even a trader with several years of experience in the market can benefit from the demo account. In fact, there are many well-experienced forex traders who, even after years of trading, still own one or more demo trading accounts.
There is one very simple reason behind this – experienced traders can use a demo account to try out different types of trading strategies, use new expert advisors, backtest them, and see how they would work in different types of market conditions.
When you are working on adopting a new forex trading strategy or cryptocurrency trading strategy, it is only natural that you first test it. Without testing the trading strategy, it will be impossible to tell how useful it actually is. A demo account is a perfect place for testing new trading strategies.
The same goes for expert advisors. While EAs are very helpful in forex trading, it can get a bit hard to decide which one to use if you’re buying one from a marketplace. In such situations, using a demo account for backtesting or optimising is one of the best options that you have. As most brokers let you open multiple demo accounts simultaneously, you can use a separate account for each EA you’re testing.
Test different brokers’ trading conditions
Another practical use for forex demo accounts that many traders forget about is that you can use them to check out what the forex broker has to offer. Because demo accounts are readily available from forex brokers, you can open accounts with several brokers to compare their trading conditions.
Once you create a demo account, you get the opportunity to test out the actual trading conditions of the broker. You can see how speedy the broker’s execution is, view the spreads, commissions and swaps, check out what type of assets the broker offers, and so on.
How to open a demo trading account
The best part about demo trading accounts is that you get to do all of these without any commitments whatsoever. You can simply go on a broker’s website, find the button to open the demo account, and usually just provide your email address. There is no need to go through any onboarding procedures, not deposit anything, and simply check out what the broker has to offer.
Follow this link to open your Scandinavian Capital Markets demo account now.
All in all, a demo account is a great option for all traders, regardless of which products you’re trading. Both beginners and experienced traders can learn a lot about the forex, commodities, cryptocurrency market, and the broker they are using.
Frequently asked questions
Can I use a demo account to practice trading cryptocurrencies?
Yes. You can practise trading cryptocurrencies with a demo account provided by Scandinavian Capital Markets.
How long can I keep my demo account?
If Scandinavian Capital Markets provided your demo account, you’d be pleased to know that the demo account does not expire, providing you actively use the account. If the account is left dormant for longer than six months, it might expire.
How long does it take to open a demo trading account?
Completing the application form takes less than a minute. Once the form is submitted, you’ll receive your account credentials via email almost instantly.
What is the difference between a paper trading account and a demo trading account?
There is no difference between a paper trading account and a demo trading account. They are just different phrases to express the same thing. The phrase paper trading account is typically used by stockbrokers in North America, whereas the term demo trading account is used by online forex brokers.