I have a heard a lot of chatter about whether it is better to open a Forex demo or a live account first. In my early days of trading I use to find myself on BabyPips and similar sites and the first recommendation always is, “DON’T TOUCH A LIVE ACCOUNT” if you are not fully schooled in Technical analysis stick with Forex Demo account till you are. News Flash! Forex is not just about Technical’s it is also about Fundamental analysis. What does this have to do with a Forex demo or live account? Well, Technical analysis is all about charting and reading in the statistical elements of what the market is doing, much like the ‘Matrix’ a lot of new traders tend to want to start with Technical analysis and hence get into a lot of trouble. What you should know is that even technical traders can never usually agree on the best strategy to win, that is because there is none, it is really about developing a consistent trading pattern with the technical tools that work for you. So why worry about whether you open a Forex demo or live account?
If you were a fundamentalist trader, you are most likely someone with a Macro Economic background or some kind of MBA holder, etc. Fundamental analysis is really the ability to organize and filter the tons macroeconomic data that influence the market, in fact some will argue it is in this art that you can make some serious money with the market. Everyday Governments publish data on production, housing, consumption, etc all with impacts on the flow of currency. However this data has not been very reliable over the years as they are subject to revision so the big players can’t afford to hedge their bets on this data rather they want a more long-term picture as a result tend to keep their ear to the ground for upcoming changes in government policy like interest rate changes, etc. This means these guys can make large volumes of cash investments on a trade for months with wide stop losses, this is why no matter how convincing a particular market data is it is not enough to trigger the kind of volatility that will send you to the nearest Mercedes dealership.
This frustration has led to the rise of Algorithmic traders who use robots programmed to automatically open and close trades if certain technical conditions arise. The reason is simple, these traders can take advantage of several volatile points in the day when price is jostling around as sellers and buyers place orders in response to certain news or expected news. This has reduced volatility overall in the Forex market meaning you no longer see extreme market moves in short spaces except on occasion a crazy chancellor makes a sudden announcement that no one could have seen coming.
There is no real point worrying about your abilities as a technical trader, in fact it is likely that you could trade comfortably with the basics and never need any advance tuition on technical analysis. After all on the real trading floor people do trade as one desk so everyone tends to know the same thing. The introduction of algorithms means you are hardly going to experience extreme volatility that will kill you as long as your position size is right. See my article on Position sizing. So open a live account with $1000 and trade micro lots till you feel ready you may be a fundamentalist trade and think Technical’s are not useful to your style. That also being said if you are Technical guy then a Forex Demo account may be perfect to practice and hone your skills. I still have my Forex Demo account, great for back testing a strategy for future trades. So the next time you are faced with the question, “Forex demo or live account?” just think what kind of trader you want to be rather than any major risk scenarios.
So again, if you asking Forex demo or live account? Then just think of the above.