Keep demo time to minimum, but use it to the fullest!
A question that is regularly asked and one where there is no definitive answer. However, we would recommend the following steps before you even think about opening a live account:
• Open, and trade on, a dummy account with the broker you intend to open a live account with for enough time to test the trading platform. This will give you the opportunity to fully understand the functionality available to you on the platform you are using.
• If you don’t like the broker simply switch to another or contact us – easier to do now than when you have a live funded account.
• Open more than 1 demo account (if your broker allows it) to assess their offering: Fixed Spreads, Variable Spreads, ECN offering etc. That way, when the time comes to open a live account, you will have the knowledge to open an account with the trading conditions you are most comfortable with.
• When you open your dummy account be realistic! Don’t open an account with “virtual” funds of $1 Million or $500,000 – be realistic and open a demo with the amount (or close to it) that you are likely to open a real account with. Unless you have in excess of $500,000 disposable income to trade with of course!
• Don’t trade on ridiculously high leverage – some brokers will offer insanely high leverage in excess of 500:1. As we have discussed before; leverage can both magnify your profits and your losses! Be sensible and use leverage that will allow you to manage your risk accordingly. Use the leverage you are comfortable with. Many professional traders will trade successfully on leverage of between 10:1 to 50:1 only. We would suggest not trading on leverage higher than 100:1
• Whilst a dummy account is good for familiarizing yourself with trading – it should be stressed that trading on “virtual” money is not the same as trading with your own hard earned money, so be aware!
• A demo environment will help you to begin to develop your trading strategy and better understand the risk and rewards associated with trading FX.
• If you are planning on using EA’s (Expert Advisers in MT4), or alternate robots, to trade algorithmically then utilise your brokers demo environment to “back test” them.
• Keep a trading journal. This will help you identify what trades were successful and the reasons why, and help you better understand the reasons behind your losing trades.
• Finally, once you feel confident/comfortable with your trading now is the time to open a live account
• Avoid bonuses and other “gimmicks” FX brokers offer. These are used to attract you to open with them and, invariably, have a multitude of terms and conditions around them that are of no benefit to you. If anything, matching bonuses etc., are used to entice you to deposit and trade more – all which goes against adopting a good trading strategy where you trade on your own terms.
• Because of the competitive nature of FX do not be swayed by a broker that offers better conditions for higher initial deposits. Truthfully, you should be able to open a live account with as little as $100. Why should someone depositing more than you have better terms and conditions?
• Your broker should be regulated by one of the main regulatory bodies: FCA, NFA, CySEC, ASIC etc. If not, then do not open with them as you will not have any recourse if you are unhappy with them in the future. Non regulated brokers are the “bucket shops” so often chastised in all FX Forums.
• Your broker should have open communication with you throughout their on-boarding process. These processes vary, but expect to be asked for numerous pieces of ID, Proof of Residence and Utility Bills etc. This should be taken as a positive sign indicating your broker is adhering to its internal KYC (Know Your Client) procedures and that of its regulator
• Many brokers offer a multitude of funding options for its clients. Just be aware of any charges you may incur, whether it be from your broker or your own Financial Institution (Credit Card Charges, Electronic Transfer fees, 3rd Party Provider fees like PayPal, Neteller, and Skrill etc.)
• If you can’t find this information on your broker’s site contact them directly. Most brokers have live chat, email and phone numbers to call so use any method to get an answer to your question.
• Finally, once your account is live and funded remember your trading strategy. DO NOT trade for the sake of trading!