What are the benefits of using a Forex demo account?

There are many statistics that highlight the sheer size and appeal of the forex market, with the value of this global entity estimated as a staggering $1.934 quadrillion.

This is more than 2.5-times larger than the world’s GDP, and with this in mind, it's little wonder that the majority of novice investors look to target this marketplace when starting out.

However, it’s important that you take proactive steps to negate the volatile nature of the forex market and, in some instances, use this to your advantage. Using a demo account is central to achieving these objectives, but what exactly are the key benefits of leveraging this type of platform?

1. Bridge the Gap Between Theory and Practice

Whilst we’d always recommend building a large store of theoretical knowledge before attempting to trade currency, this alone is not enough to guarantee sustained success.

Instead, you’ll need to bridge the cavernous gap between knowledge and practical experience, and there’s no doubt that using a demo account can play a key role in achieving this goal.

The reason for this is simple; as demo accounts effectively simulate real-time trading conditions and allow investors to operate as normal, except for the fact that they use fake currency and are able to save their hard-earned cash.

Typically, you’ll use this type of account for between three and six months, during which time you’ll gain tangible experience of forex trading without putting your capital at risk.

2. Develop Your Trading Strategies

On a similar note, using a forex demo account will enable you to test your preferred trading strategies in a real-time marketplace.

Not only can you take this opportunity to evaluate these strategies and compare their results in terms of profitability, but it also allows for crucial experimentation as you look to adapt your ideals to suit the demands of an inherently volatile market.

Over time, using a demo account will enable you to develop your trading strategies in an informed and effective manner, translating into higher and more sustainable profits in the future.

3. Understand the Challenges Posed by Forex Trading

As we’ve already said, you’ll most likely have to tailor your trading strategies to cope with the real-time demands and challenges posed by the forex market.

After all, the market is defined by volatile price shifts, while it also remains at the mercy of economic data releases, geopolitical conflict and the impact of changing macroeconomic factors.

Not only this, but the forex market is open for 24 hours and six days each week, which each day split into three global trading sessions. This can make it hard to keep track of market movements as they unfold, so you’ll need to develop a portfolio and schedule that optimises your chances of success.