A forex demo account is a very crucial tool for assessing a broker’s platform, testing your fundamental and technical analysis skills and lots more. Using a demo account is highly recommended.
Yet it doesn’t fully prepare you for the real thing. Here are 4 downsides for demo accounts, and solutions for part of them.
Demo trading doesn’t include execution problems: Even the best brokers with a strong reputation and many liquidity providers cannot avoid a failed execution of your orders. This is reality, especially in extremely volatile market conditions. Execution in demo accounts doesn’t fully mimic real accounts. Unfortunately there’s no solution for this issue, and this doesn’t mean you should skip demo trading. Just be aware of this.
Amount: The amount of money that you’ll see in your demo account will usually be much larger than you’ll deposit. This will make every loss you encounter in the demo account as less meaningful and may enhance the feeling of “monopoly money”. So, you’ll be less prepared for the real thing. In addition, you”ll get used to big position sizes, and wehn you’ll reach the real thing, a few losing trades could burn your real money. Solution: Ask the broker to adjust the amount of demo money to the number you really think of depositing.
Broker may add demo money: This practice isn’t too common, but you should still be aware of it and refuse to accept it. Refilling the account when it’s close to depletion may help you continue practicing and will also prepare you for more real deposits in the future, something the broker always wants you to do. But on the other hand, it may also give you the false feeling that it’s just another computer game when you can always click “New Game” and also hinder your performance with a real trade. Solution: Ask the broker to “withdraw” the demo money from your account.
Once you’re in, you’re in: If you test only one broker’s account, you’ll most likely proceed with depositing real money. Why? Because you’re already familiar with the platform and the salesperson encourages you to dip into the real waters. The goal of demo trading for you and for the broker is that you’ll get familiar and open a real account. So that’s good. But wait: being familiar with one broker doesn’t mean it is the best one for you. For the sake of comparison, at least test one more broker. The second test will likely be faster.
I would like to repeat that demo accounts are still of high importance and that also seasoned forex traders should test a new broker with a demo account before making a deposit. It’s just that like anything else in life, a simulation cannot fully prepare you for the real thing.
What do you think? Are there any other pitfalls that you can think of?
Thursday, November 3, 2011
Tuesday, November 1, 2011
EUR/USD Nov. 1 – Falls on Greek Referendum
EURUSD is free falling. The hangover from the EU Summit has intensified as the Greek Prime Minister announced a referendum to approve the recent EU deal. This gamble, alongside more signs of global slowdown, weigh heavily on the common currency, which already returned to the levels last seen before the previous summit.
Here’s a short update on fundamentals and what’s going on in the markets.
EUR/USD Fundamentals
14:00 US ISM Manufacturing PMI. Exp. 52.1 points. First hint towards the Non-Farm Payrolls. See how to trade this event with USD/JPY.
14:00 US Construction Spending. Exp. +0.4%.
14:00 US ISM Manufacturing Prices. Exp. 55.1 points.
* All times are GMT.
EUR/USD Sentiment
Greek Referendum: In a move that came as a shocker (although hinted in the past) Greece’s Prime Minister Papandeou announced that the recent EU Summit deal will be brought to the Greek public. This can delay implementation in the better scenario, and receive a NO in the more realistic scenario.
Partial Holiday: It’s “All Saints” Day in many European countries, hence no economic indicators and a slightly lower volume.
Global Slowdown: Chinese PMIs weren’t so convincing, and the sharp drop in British PMI. These join weak euro-zone figures published recently. The Australian rate cut, by itself a downwards sign, was accompanied with a weak sentiment.
EU Summit Doubts: After a very cheerful reception for the EU Summit results, the doubts begin to rise. This begins with no demand for a specific participation in the Greek haircut, continues with doubts about the willingness of China to really help, and the open question of CDS triggering.
Yen intervention fading: The Japanese authorities had enough after USD/JPY fell to 75.31 and made a sharp move in the pair, sending it as much as 400 pips higher before dropping a bit. This wild action sent EUR/USD down, and started the downfall. In the meantime, USD/JPY calmed down and EUR/USD continues on its own.
Italian bonds yields soaring: One of the stronger signs of disbelief comes from Italy. Berlusconi was forced to accept concessions, but they aren’t really huge. Until the leveraged EFSF comes into action, Italy suffers in its bond auctions and was forced to pay a dear price. The ECB, headed by Italian from Tuesday, still finds itself acting and buying bonds to lower their yields. This is a worrying sign. 10 year yields are currently 6.20% – as if the ECB never intervened…
US Situation Improving: The first read of GDP for the third quarter of 2011 came out at 2.5%. This was within expectations but much better than the previous quarters. While it triggered a strong risk rally, there’s still uncertainty about how the Federal Reserve will digest this. They might raise forecasts, but some expect them to act in the meeting this Wednesday.
Here’s a short update on fundamentals and what’s going on in the markets.
EUR/USD Fundamentals
14:00 US ISM Manufacturing PMI. Exp. 52.1 points. First hint towards the Non-Farm Payrolls. See how to trade this event with USD/JPY.
14:00 US Construction Spending. Exp. +0.4%.
14:00 US ISM Manufacturing Prices. Exp. 55.1 points.
* All times are GMT.
EUR/USD Sentiment
Greek Referendum: In a move that came as a shocker (although hinted in the past) Greece’s Prime Minister Papandeou announced that the recent EU Summit deal will be brought to the Greek public. This can delay implementation in the better scenario, and receive a NO in the more realistic scenario.
Partial Holiday: It’s “All Saints” Day in many European countries, hence no economic indicators and a slightly lower volume.
Global Slowdown: Chinese PMIs weren’t so convincing, and the sharp drop in British PMI. These join weak euro-zone figures published recently. The Australian rate cut, by itself a downwards sign, was accompanied with a weak sentiment.
EU Summit Doubts: After a very cheerful reception for the EU Summit results, the doubts begin to rise. This begins with no demand for a specific participation in the Greek haircut, continues with doubts about the willingness of China to really help, and the open question of CDS triggering.
Yen intervention fading: The Japanese authorities had enough after USD/JPY fell to 75.31 and made a sharp move in the pair, sending it as much as 400 pips higher before dropping a bit. This wild action sent EUR/USD down, and started the downfall. In the meantime, USD/JPY calmed down and EUR/USD continues on its own.
Italian bonds yields soaring: One of the stronger signs of disbelief comes from Italy. Berlusconi was forced to accept concessions, but they aren’t really huge. Until the leveraged EFSF comes into action, Italy suffers in its bond auctions and was forced to pay a dear price. The ECB, headed by Italian from Tuesday, still finds itself acting and buying bonds to lower their yields. This is a worrying sign. 10 year yields are currently 6.20% – as if the ECB never intervened…
US Situation Improving: The first read of GDP for the third quarter of 2011 came out at 2.5%. This was within expectations but much better than the previous quarters. While it triggered a strong risk rally, there’s still uncertainty about how the Federal Reserve will digest this. They might raise forecasts, but some expect them to act in the meeting this Wednesday.
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