Before committing real funds to a Forex account, it helps to learn the features of each of the different trading software. Forex traders can test each platform using a demo account. Forex dealers will typically allow a potential investor practice with a free version of their software. This provides the investor an opportunity to learn how the platform works before they place a trade order.
In Forex trading, the investor is buying and selling currency pairs predicting when price fluctuations will make them money. The currency pair most often traded on the Forex is the Euro/USD pair. This is the Euro and the U.S. dollar. This pair accounts for 28 percent of all daily trading on the Forex worldwide. This makes this pair a sensible choice for a demo account.
Potential Forex traders should always try out trading using a demo account before they invest real money. This is the best way to become familiar with how the process works. Most serious potential traders will place at least 20 demo trades on each platform before placing live trades. Since the different platforms have unique features and specifics, 20 trades is usually enough for a potential trader to understand how a given platform operates. Before placing a live order, a trader should be able to answer these questions:
– How is an order placed?
– How is a stop order set?
– Can both a limit and a stop be set at entry?
– Are the platform spreads variable or fixed?
– Is mixing and matching lot sizes allowed?
– What is the trading lot size?
– If the internet connection drops, is there a way to contact the dealing room directly?
Once a trader is comfortable with the answers to these questions, they can start trading live on a platform.
One of the items sometimes overlooked by new traders is the tax reporting. Forex is a worldwide, unregulated trading market, so most dealers and brokers do not provide tax documentation to a trader’s country of residence. This means that tax reporting is the responsibility of the trader. The brokers and dealers can provide a detailed trading and transaction history, usually digital and the traders use this to complete their tax reports. This means is it a good idea to go with trading platforms which have clear, detailed reporting capabilities. Reporting quality varies from dealer to dealer. Some will provide the trader with a complete transaction report, but it is important to pay attention to how the transaction details are laid out. Depending upon the format, traders could spend just a minute printing out the necessary report to file with taxes, or could spend hours trying to reconcile the information so it can be provided for taxes.
Demo Trading Like It Is Real
Once a trader understands the mechanics of the various platforms, they should experiment with different trade sizes and different currencies. The most popular currency on the live Forex is the EUR/USD pair, so this is a good one to try.