Forex Trading: From Demo to Live

Forex Trading: From Demo to Live

Like most traders, you would have most likely skipped the step of trading with a demo account. Some of you might have started with a demo account, but quickly transited over to a live account within a few days or weeks. This phenomenon is not surprising and very predictable. However, doing so can increase your losses if you are not proficient with your strategy of choice. For those that eventually revert back to using a demo account to practice, you will wonder; when is it a good time to go over to a live account? In this post, we will share about some tips what are some indications that you are ready to transition over to a live account.

The first indication would be that you treat your demo account like a live account. Many of us are more risk taking with our demo account as compared to the live account. After all, the funds inside are not real, and it is not our money that we are risking every time we trade. This is not the correct mindset to have, as you are not practicing with the correct mindset when you are using your demo account. When you are able to be disciplined enough to treat your demo account like your live account, you will carry over the same good habits that make your demo account profitable, into your live accounts.

The second indication would be that you are consistently profitable in your demo account. The demo account is a platform that you can develop strategies to minimize your losses and maximise your profits. Don’t treat forex like a get rich quick scheme; you should be focusing on long term profits instead of a one off trade that brings in the money. When you are profitable on 70% of your trades or higher with a reasonable risk to reward ratio, you are set to bring the strategy that has provided this profit ratio into the live account.

The third indication would be your comfortability with losses. In forex, there is no strategy that can promise a 100% winning probability. There will be losses as you trade and it is not easy to come to terms with losses. This is especially so in your real account, as you are now trading with your actual money. Once you are able to not chase losses and take these losses in your stride and learn from them, you are a step closer to transitioning over to a live account. Remember this; a bad trading period does not necessarily mean that your strategy is no longer valid. Monitor and evaluate your wins and losses over time to determine the success rate of your strategy and for you to be more comfortable with losses in the forex market.

The fourth indication would be your resilience to the deposition effect. Many traders have a tendency to cut their earnings short and hold on to their losses for far too long. This tendency is also known as the deposition effect. Many traders, even the seasoned ones, are prone to succumbing to this effect. By engaging in such behaviours, the trader effectively diminishes their returns and have less than ideal risk to reward ratios. At the same time, by holding on to the losses, you lose the opportunity to enter more favourable trades that could happen while your current trade is ongoing. If you are able to resist falling for the deposition effect in your demo account, it will help you when you are trading with your actual account.

In conclusion, the above are some of the few indications that you are ready to transition to a live account. It is important to understand that mindset and method plays an important role when it comes to trading, and it would be in your interest to minimize the risk you have so that you are able to navigate the forex markets protected. Another recommendation would also be to use a micro or mini account when first getting into forex as a small step before funding sizeable amounts. This is because some of us may still not be able to get into the proper mindset when using a demo account. By taking smaller steps and proceeding with a small account first, we can identify what kind of behaviours we have while trading with our actual money, and see if our behavioural pattern is different when we are trading with our demo account.