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Free Demo accounts. Are they beneficial?

Retail foreign exchange trading is increasing in popularity. Individuals are now turning to foreign exchange trading as a form of investment. However, the nature and intricacies of the foreign exchange market and its volatility can make it difficult for a new trader to study its pros and cons in order to make an informed decision before committing any money into it.

Although primers like the one from the National Futures Association (can be downloaded at http://www.nfa.futures.org/investor/forex.asp) can help a lot in initiating a newcomer into the trade, retail investors would need a way to practice the theories they are able to learn before using real money.

Free demo accounts being offered by most brokers allow a potential foreign exchange trader to practice and make decisions and see the consequences of their transactions – whether they are gaining or losing. Demo accounts give the user a “feel” of the trade that cannot be had merely by reading or seeking advice on foreign exchange trading.

Free demo accounts usually have a starting amount that an investor can play with. Everything is real except the starting capital. The user can then employ this starting capital as he or she pleases and begin trading. All the information is real – the exchange rates, the buy and sell prices. The information is almost always in real-time. This allows the would-be investor to see how well (or bad) he is faring, again, in real-time. Profits and losses and the balance of the account are updated instantaneously for every transaction made. The demo account user can then see how fast money can be gained and lost in forex trading. It is recommended that a future forex trader immerse himself in more than one trading platform for months before pouring in real money.

There are also algorithms or software that have been developed to monitor the trends and other variables affecting exchange rates and automatically make buy and sell decisions for the user. Some free demo accounts also have a platform or software that incorporates these algorithms. The results and effectivity of these algorithms or software are varied and one must be wary of software that claims to always make a profit. This is simply a false claim since economic, political, and psychological factors affect the value of the different currencies relative to one another that these variables are impossible to incorporate into an algorithm. Automated foreign exchange trading software must be taken with a grain of salt and should not be taken for its claims. The user should know that with or without software to aid him in forex trading the risks associated with the market remain real and inevitable.

If there is one major benefit of free demo accounts, it is for giving the would-be investor not just knowledge, but the experience of retail trading in the forex market. It is giving the user the actual taste, the thrill, of making and losing fortunes in the trade in a matter of minutes. It is giving the user a feel of the volatility of the market and making her realize that as much as the possibility of making money in forex trading is real, the possibility of losing it is real.