One of the reasons I recommend people start their trading career by trading Forex is that the Forex brokers tend to offer small traders so much for free.
One of the freebies is often a demonstration account. This acts and feels exactly like a real account except that you are allowed to use Monopoly money instead of real money and consequently no real trades are ever executed. This means that you can practice and perfect all of your trading strategies and ideas in a totally risk-free environment. Generally the brokers will limit the time you can use such a demonstration account as clearly they want you to be trading with real money but normally you can just re-apply or move on to a new broker.
New traders should definitely not be rushed into trading with real money. As with anything we try in life that is new we will make some really big blunders and it is best to do this with Monopoly money rather than next week’s rent.
Probably the biggest argument I hear against starting on a demonstration account is that it does not simulate the psychological pressure that you experience when trading with your own real money. That it is easy to have a high tolerance to risk when none of your own money is at stake. The argument goes that because of this feeling of financial detachment it is easier for novice traders to make the correct difficult decisions that are necessary in trading but much more difficult to repeat these in a real money account.
To some extent I agree….. but…..I think that this partially misses the important point that when you start your trading career you are not really trying to make money from day one. You should be concentrating on trying to learn to trade and then apply the correct successful techniques and methods. Whether you are under psychological pressure or not with a demo account you can practice and practice until you have formulated a methodology and systematic approach that makes you consistent money. This in itself requires a certain amount of practice and trial and error which is far better carried out on a demo rather than using real money.
Once you have a methodology that works on a demo account THEN the next challenge is to replicate that with a real money account.
My recommendation is to then move on to a real money account and trade at the smallest level possible. Try and replicate your demo account results whilst taking just a little bit of risk with your own real money. Maybe deposit US$500 in an account and trade mini lots. Once you have achieved good results in both the demo account and mini account you should have significantly more confidence that you know what you are doing and more importantly that you now know what works and what does not work. At this stage you can scale up your trading a little by depositing additional funds.
So the best solution is to build up your trading progressively one step or stage at a time. Before moving from one stage to the next demand proof of yourself that you really can make profits and have mastered the techniques.
After all if you cannot make money on the demo account what on earth would be the point of moving up to real money account. Equally well if you’re not sure whether you can make money or not in trading why would you choose to test that in a real money account when somebody has kindly provided you with a demo facility.