One of the most frequently asked questions we received from new Singapore Forex traders sounds like that: Is there a difference between real and demo accounts?
The answer is evident: of course, there are significant differences between the accounts. Moreover, there are many issues faced by a novice Forex trader, who opens a real account on his first time. In this article we will cover few very important aspects about real and demo Forex accounts that many Singapore Forex brokers prefer to keep silent about them.
All the aspects that distinguish a demo account from a real one, are divided into three main groups:
1. The technical aspect includes a fact that in a demo trading account all transactions are conducted by a computer. On a real account we have a human factor, means that trading transactions on a real account are monitored by a person not a machine. In a demo account all operations take place in seconds, regardless of the price movement. The real account is connected to the servers of banks and thus it may not work as quickly as demo account. Processing the information by a global system takes time. Sometimes executing an order in a real account may take few seconds and even more. This delay may seam very unusual for a novice trader who was familiar only with demo Forex trading.
The difference between demo and real trading also depends on the type of a Forex broker you are trading with. If you are trading with an STP broker like eToro, the real transactions are handled by a system as described above. But when trading with a market maker broker like AvaFX, a dealer is engaged in processing information and the price of a currency pair may be changed several times during the order execution. For example, a Forex trader places an order before the news release, the news came out, and a trader earned 70 pips profit in his demo account in a few seconds. But in the real world the same picture may look different. It takes time while information about transactions reaches the servers of a forex broker or a dealing desk. Due to the delay in the information exchange the price may change its direction in a second and while you were having profit in demo, you will have a loss in a real account.
2. The psychological problem is that when trading on a demo account, Forex traders can finish a day with a big number of successful transaction, but as it comes to the real trading, their success is gone. What’s the matter? The explanation is very simple. When trading on a demo account, a Singapore Forex trader believes that he risks nothing, but in a real account you can lose everything. A trader begins to fear and makes wrong decisions, and as we all know panic is a bad counselor. For that reason we recommend you to start trading real money from the amount that you are not afraid to lose.
3. Finally, special moments that Forex brokers don’t like to discuss. These are the moments when a Forex broker is trading against a trader and makes all possible to make him lose money. It often happens with the market maker Forex brokers.
Suddenly a trader gets a “candle” of 300 points that hits his stop-loss and closes his open position with a loss. After that the price goes back to its former level. But when checking the demo chart and the price charts of other brokers, there is no such candle there. Slippage is one of the popular ways used by some Forex brokers to rob a trader. For example a trader puts an order to buy GBP/USD at 1.4400 and a broker opens his trading position at 1.4410.
We want to point out that not all Forex brokers are bad guys and not all of them are trading against their traders. Make sure that you check the regulation and reputation of a broker you are trading with to avoid issues.
To sum it up, we recommend all Forex traders to be ready to certain obstacles to real profits when trading in a real Forex account. Making real profits in a Forex market is not an easy task. Prepare yourself to the situations where you will need a lot of patience and self-control in order to go over the difficulties of real trading and make Forex profits.