The Key Differences Between Demo and Live Forex Trading
There are many key differences between live and demo Forex trading. While both types of accounts allow the investor to execute a particular transaction, the real difference is usually found in how each type of trading is executed.
- In a live account an investor can be anywhere within the globe at any time, whereas a demo allows the investor to only be in front of their computer at the time of execution. This may seem like a minor distinction, but there are some important differences that must be noted.
- As mentioned above, the biggest differences between demo and live trading environments is often found in the execution of trades. The first difference comes from the brokerage that a trader will use. An investor in a demo Forex environment may not have access to the same level of support from their broker as an investor using a real brokerage. Because of this, brokers will oftentimes charge higher fees to those investors who use them, whereas those who are using a real brokerage will oftentimes offer a discount for the use of a broker.
- While brokers have increased the amount of leverage they provide on their services in an effort to increase the value of their service and their revenue streams, this also often increases the amount of risk that the investor is exposed to on a daily basis. The biggest way that this is carried out is through increased margins on the transactions that are performed. However, a trader can reduce this significantly by only opening up one position at a time with his or her demo accounts, and only using leverage when they decide to execute a long position. In addition, a trader should also take care to note the minimum size of positions that are open when using demo accounts.
- Another of the key differences between the two types of Forex market trading environments comes from the manner in which the broker supplies their clients with the software that they need to successfully execute their trades. In a live environment, brokers are typically individuals who are members of professional financial institutions who are closely tied to the different trading markets that are active around the clock. When using their services, clients can expect that the broker will provide them with the platform that they need, as well as the various charting and monitoring tools that they need to effectively manage their investments. They will also provide the software necessary to execute the various trades that are being made as well as the platform necessary for the customer to be able to access this information.
Because of the performance differences between the two types of Forex trading environments, investors who are deciding between which one to use must also take into consideration the different fees and charges that they will incur in order to maintain their account. For instance, in a demo Forex account the broker is generally not required to provide the client with any type of support or training similar to that which is provided to an actual client who is conducting live trading on their platform. The only support that the broker may provide comes from the ability to link their customer’s accounts to their own through a link that is provided by the brokerage itself. As previously stated, because of the different performances that each type of Forex broker has been known to have had in the past, clients are urged to weigh the pros and cons of each one in order to ensure that they are making the right decision based on their own personal preferences.
Finally, the commissions that each broker may charge in order to execute a trade that is being executed on their platform can vary between one broker and the next. It should be noted that although demo accounts may offer higher commission rates than those that are available through live trading environments, the trade execution that is performed in a demo environment is oftentimes less reliable than that which is performed in a live trading environment. This is due to the fact that no real money is at stake, whereas in a live trading environment, money is on the line for both the trader as well as the broker that is conducting the trade. Therefore, it is advised that clients that prefer to conduct their trading on a demo platform that offers them a lower commission rate, may wish to look towards brokers that have a higher commission rate. Although the final decision will likely be influenced by these three factors, the ease of use, the number of available trading pairs, as well as the ease of understanding each feature will all play a major role in helping individuals determine which Forex broker to select