Regarding the foreign exchange simulation account concept of the foreign exchange trading platform, we have already introduced you in the previous article and talked about the meaning of using the foreign exchange simulation account. This article will talk more deeply about the importance of using the foreign exchange simulation account.
Some traders will feel that simulated trading is meaningless, but whether a novice or an experienced trader, a simulated account is an essential tool to control risks.
We know that any investment is risky, so the demo account can undoubtedly help novices become familiar with the trading platform, familiar with the trading market environment, and learn some trading skills. Because the foreign exchange simulation account can provide traders with a risk-free trading environment, the profits and losses in the simulation account do not need to pay a realistic price. Therefore, novices can learn the knowledge of the foreign exchange trading platform, understand the types of orders, learn to use leverage, and learn risk management through the demo account without taking any risks. At the same time, it can also help the novices understand the platform's various functions and experiences. As well as being familiar with the actual foreign exchange trading platform market environment can also help them objectively judge whether their situation is suitable for foreign exchange investment.
In addition, foreign exchange experts in the foreign exchange platform will also provide customers with the latest market trends, possible opportunities, and operational opinions for simulated trading customers.
Therefore, for experienced traders, some innovative ideas and strategies can experiment through simulated trading, and traders can adjust the system's performance in the account to prepare for the real market. The whole process can also help veterans of trading to improve their trading skills, and there is no need to worry about any mistakes.
However, it should be noted here that the market environment of the demo account is not entirely equal to the real market.
Of course, in addition to some of the trader's trading ideas and strategies, the demo account can also be used to test the EA system. EA is currently the most popular automatic trading tool in the foreign exchange market. Both MT4 and MT5 support EA. But sometimes, traders may find that the execution effect of the EA system is not as good as their expectations. To avoid such a situation, traders can test the EA system in advance through a simulated account. Compared to the strategy testers on the MetaTrader platform, some traders prefer to use the model account to test a new EA. Because most EAs have been optimized, they will perform very well in the backtest. But the usual situation is that most EAs in the subsequent performance will not necessarily perform as well as before. This is also one of the advantages of using a demo account for EA testing because traders can know the current performance of the EA system and can continuously test and try different methods.
Of course, in addition to helping traders to a certain extent, a simulated account can also enable foreign exchange trading platform providers better to develop their markets through this form of simulated trading.
"However, the demo account will also have some negative effects."
1. Large amount of funds, it is easy to be tempted
The foreign exchange simulation account usually has a principal of 100,000 to 200,000 US dollars. Even if the general trader uses these funds with a 2% risk, each transaction may earn 300-700 US dollars. This is a massive deal for traders. The big temptation, too high initial trading funds, will to a large extent encourage and encourage investors to take risks.
When many investors open a real account, the price is usually a few hundred or one or two thousand dollars. They may only earn a small amount of money per transaction, maybe a few dollars.
2. With a large number of funds, it is easy to overlook the management of funds
The initial funds of the foreign exchange simulation account are relatively large. Novice traders who have such a large amount of funds often do not have the concept of fund management. They will repeatedly enter and exit the market, not carefully study every transaction, and it is easy to trade in heavy positions. Feel free to change.
3. Not easy to take seriously
Because the trading funds of the demo account are virtual, you will not lose money if you lose, and you won't be your own. Therefore, the foreign exchange trading platform will not take it seriously. If it is a real account, the trader will carefully watch the market, analyze, and make decisions. Place an order, and when conducting a simulated transaction, you may place an order based on some feelings. At the same time, if you encounter something temporarily, you will also walk away, and it is difficult to treat it with a severe attitude.
4. It isn't easy to strictly self-discipline and deviate from the pre-strategy
For many traders, it is common practice to use a demo account to practice their trading strategies. However, in simulated trading, especially for novices, it isn't easy to exercise strict self-discipline and control their emotions. Once they have a sudden inspiration, they Will deviate from their pre-planned strategy.
In general, the demo account cannot control part of human nature and even makes traders develop unprincipled trading habits. Simultaneously, the demo account is not equal to the real account, and the trading results of the demo account are not directly comparable to the real trading account. The results of trading, but if the trader can't make a profit in the demo account, how to profit in actual trading? For traders, the meaning of the demo account is to help them understand the trading platform, understand foreign exchange margin trading, master order types, perceive market dynamics, test the system in advance, and prepare for actual trading.
Short-term gains do not mean that the transaction is successful. Long-term and stable gains are the ultimate goal pursued by the exchange. Therefore, for traders, the meaning of a foreign exchange simulation account is to find problems in the process of simulated trading to achieve the goal of long-term profit.