The pros and cons of paper trading with a Forex practice account

Fsp Invest Team, 17 May. 2013

Tags: pros and cons of forex practice accounts, benefits and dangers of a forex practice account, forex trading, forex, trading forex, forex practice accounts, paper trading

Practice accounts let you try out your Forex trading skill for free. They let you start with virtual money until you have the confidence and knowledge to risk your own hard-earned cash. Surely a practice account can be nothing but a good thing? Not exactly. Read on to discover the benefits and dangers of these accounts.

Brokers who offer Forex practice accounts with low minimum deposits do it to get you interested in Forex trading. “There’s nothing wrong with this since they want to expand the number of traders in the market and on their platform,” says Forex expert Gavin Fourie Ultimate Secrets to Forex Trading.
A Forex practice account is also a great way for a new trader to learn to trade Forex, especially considering that Forex trading is no simple ‘click and go’ experience.
But, the reality is that Forex practice accounts provide a service that’s loved by some and hated by others.
Revealed: The pros and cons of a Forex practice accounts
The big benefit for you is being able to learn the Forex market and key functions of trading without risking a cent of your own money – this is known as (paper trading). But it’s not always a good thing.
“When trading with virtual money, the risk becomes less, in fact, risk is non-existent as you have an endless stream of virtual money,” says Fourie. As a result, you’ll risk money on trades you know you shouldn’t and wouldn’t make with your own money. This can give you a false sense of security.
Here’s where the danger lies.
Let’s say you take a big risk with practice money and it comes off, you’ll take another big risk and that comes off too.
All of a sudden your confidence is up and you feel you can start trading with your own money and taking uncalculated risks.
The Forex market becomes very appealing to you. And you think if you can make so much money on your practice account, imagine how well off you’d be if you used real money. You go ahead and open a real trading account with your own cash. You make a risky trade with your own cash and it fails. Suddenly, your Forex career is over and you’re looking at a significant financial loss.
But it’s not all doom and gloom. If you take things slowly and carefully you can avoid this and become a successful Forex trader, but you have to have self-control and discipline.
Here’s how to ensure you benefit from paper trading on a Forex practice accounts
Practice accounts are very useful, but only if you approach trades exactly as you would if it was your own money.
The golden rule is “never make a trade in a practice account that you wouldn’t make with your own cash,” cautions Fourie.
Use a free practice account for a few weeks while you learn and practice the basics of Forex trading, but then open an account and start with small trades.
And remember: “Never jump both feet first into Forex. Success comes from patience, awareness, and discipline,” cautions Fourie.

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