Every reputable forex broker today offers their clients a choice of a live forex account, and/or a "demo" account. The live account is the one that you have your hard-earned money in that you trade in the markets.
The demo account runs on the broker's servers, has all the bells and whistles that the live trading platform does, and streams market prices real-time to the trader. The only significant difference is that on the demo account you are given a certain amount of "virtual money" to trade with when you open the account, and you can trade that account for a certain period of time, as long as you still have "funds" to trade.
One of my brokers allows me an unlimited time trading my demo account, while other brokers may limit you to 30 days. That's not a problem; at the end of the 30 days, you can simply open another one, and voila, you have more money to trade with.
What purposes do demo accounts serve, and should you use one? The answer to the second question is an unequivocal "yes!". We all have heard the term "practice makes perfect" (although I prefer "practice makes permanent"), and that's exactly what you need if you want to be a successful forex trader: practice!
What purpose does a demo account serve, and what are some of the things you will learn about the markets and more importantly yourself while practice trading?
-you will learn how to enter, exit, and manage trades on your broker's platform efficiently.
-you will begin to analyze price charts and technical and fundamental analysis without the pressure of having money on the line.
-you will start to get the feel for whether you are better at short-term or longer-term trading, and the requirements of both. You will be able to determine your attention span and tolerance for staring at a computer monitor and what time frame is best suited to your style of trading.
-you will be able to develop a trading plan and strategies, and test those strategies without the risk of losing some or all of your capital while in the "learning curve".
-you will get a feel for the "psychological pressure" that traders experience while trading in the trenches.
Even though demo trading is an important aspect of your forex trading education, it does have one limitation that you should be aware of. Because you know deep down inside that you are not really "risking" any money, you will make trading decisions with less caution than when you are trading with real money.
Even with that limitation, trading a demo account is still the wisest way to trade in the beginning. It will give you the critical practice and experience you will need, and a much better chance for eventual trading success.
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