What are the Advantages and Disadvantages of Forex practice accounts and Forex live accounts?

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Answered by: Christian, An Expert in the Forex 101 Category
Forex Trading: Practice Accounts vs Live Accounts

Forex trading is an exciting way to profit from rising and falling currencies. It can be hard for beginners to get started, so many brokers offer demo or practice accounts to help understand trading, in addition to live accounts where you are actually trading with real funds. Here, we will look at how both types of account work and what advantages/disadvantages they offer.



Practice Accounts

Forex practice accounts are offered by many retail Forex brokers to new traders, letting them paper trade with a set amount (normally $100,000) and learn how trading works. Here are some advantages they offer:

* Trade risk free



You don't risk any capital with a practice account, so are free to experiment with strategies.

* Free

Practice accounts don't cost the customer anything. Real accounts may require a minimum balance and other fees may be added on.

* Lots of Data

Practice accounts give you access to lots of market data, letting you practice making accurate trades and teaching you the fundamentals of trading.

* Trading Platform

Practice accounts let you try out the broker's platform before you sign up, showing you any downsides to their technology.

* News Feeds

Practice accounts will give you access to news feeds such as Reuters, Associated Press, Bloomberg or Telerate. You can often use a forex demo account to obtain access to such valuable news wires.

Disadvantages of practice accounts

* Creates a false sense of confidence If you are great at paper trading, does that mean you will be a great trader? Not necessarily. A practice account is a controlled environment where losses don't mean anything, for example. You need real world experience to be a good trader.

* Limited to the platform

Not every broker's platform will be great. A practice account will be limited to that platform, letting you only use the features available. You can't upgrade and might be stuck with something which isn't very powerful or unsuitable for your needs.

* You might be emotional

To trade effectively, you need to keep emotion out. Paper trading may make you celebrate prematurely and think with your heart instead of your head. You might let losses run until a position recovers, which is a terrible thing to do in real world trading. If you choose to paper trade, keep emotion out.

Live Accounts

A live or actual account is one where you trade with real money. These can be opened with anything from $500 to several thousand. Here are some advantages they offer:

* Bank Profits Unlike a practice account, you can bank profits. You are free to withdraw your profits at any time you choose.

* More Benefits Opening a live account will not only give you all the benefits of a practice account but some additional ones, too. You might receive free market reports or one on one training sessions. Every broker is different, so shop around.

* Trade on Margin

Only a live account will let you trade on margin, letting you trade with more than what you have actually deposited with your broker.

Disadvantages of Live Accounts

There are, of course, several disadvantages:

* Getting Wiped Out

Once you're wiped out in a live account, everything is gone. Unlike a practice account, you might lose everything and could potentially owe the broker money (especially if you've traded on margin).

* Not Free

There are opening costs and trading fees with live accounts.

* Difficulty Level

Real-world Forex trading might be difficult for many paper traders to adjust to. It can be a steep learning curve, so take your time and only move to a live account when you're ready.

Conclusion

Forex practice accounts are great for new traders to learn how to trade. Take your time understanding how Forex works before moving onto a live account and enjoy this exciting way of making profits.

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