Currency Trading Information Channel
Why Demo Account Performance Is Often Better Than Real Account Performance
Over the past several years, the popularity of online currency trading has grown substantially. Each day, online FX brokerage firms attract new investors - each of them lining up with a glint in their eye, lured in by promises of easy money. Most of these companies allow you to sign up for a free demo account which lets you place mock trades using their trading platform to get a feel for the excitement of currency trading. In the casual world of free demo accounts - many young traders find they are able to garner impressive profits without a significant amount of effort. It almost seems too good to be true. But transferring this success from a demo account to a real account is far less common. Why is this? The actual trading platform behaves the exact same way, the market doesn't care whether you're a demo or real trader - so what is different? It's you who has changed. Not your personality, not even your trading style - but the factors that affect you are different.
What is the key factor to trading success?
The search for the "Holy Grail" of trading has been a common theme throughout the history of markets. There are a variety of different techniques. Those whom are inclined towards number crunching and pattern recognition may prefer technical analysis, whereas those more focused on the big picture, logical macro perspective prefer fundamental analysis. Then there are specific methodologies like swing trading, trend following or even more esoteric ideas like the Elliot Wave theory. Which one is best? There are examples of very successful traders using each methodology.
Since most new traders lose money - perhaps the more appropriate question to ask is, "What is the key factor to trading failure?"
Greed and Fear
Trading is an atmosphere rich in the porous emotions of greed and fear. The current price of a given security or financial instrument at any point in time can be thought of as the confluence of greed (bulls) and fear (bears). These two emotions make up the core of humanity itself. When market information is released, trading can be a high intensity experience. Sensing danger, your body releases adrenaline that acts to accentuate both your greed (fight) and your fear (flight). Because these emotions are so strong, they can cause you to act irrationally, ignore your system, stated set of rules or trading plan and to act upon impulse. Indeed, this is a genetically programmed response - but it is often also the trader's downfall, especially when he's playing with much better capitalized, more sophisticated and experienced foes that know how to manipulate those emotions.
When you are a trader - you are always under the influence of at least one of these two emotions, even if you don't have any trades on.
Impact of fear and greed on your trading
If the market's going up and you're in - greed is telling you to buy more and fear is telling you to take your profits while you still can. If it's going down, fear of being wrong makes you hold onto a losing position - and then greed sometimes convinces you to "average down" your position (and buy more) so it'll be easier for you to come back.
If the market's going up and you're not invested - fear is telling you that you're missing out on easy money but it's your greed that causes you to get in just after the greatest increase (just when its about to reverse course). If the market's going down and you're not invested - greed is telling you to get in as the price is cheap, while fear reminds you that you'll miss out on this opportunity if you don't act quickly.
Perhaps if we just felt greed, or just felt fear we would be able to control our emotions a little better. But when both of these little devils whisper into our ears at the same time - it is often impossible not to listen.
The Thrill of Greed
The first time you try FX trading - you will feel the thrill of greed. It is an ecstatic experience, your brain flush with neurotransmitters and your mind giddy with visions of untold riches about to be reaped. Greed is bold, aggressive and incredibly exciting. It can take hold of you both mentally and physically. Just imagine the possibilities!
This greed is what draws us into FX trading in the first place - the dream of easy money and 100:1 or 200:1 margin rates. It inspires us and causes us to forego rational thinking in favour of reckless abandon.
In the movie Wall Street, Gordon Gecko says, "Greed is good", but it is also very dangerous - especially if you are unable to recognize when greed is the one doing the talking. Greed is also one of the most common techniques used to manipulate people. Every get rich quick scheme, promising untold riches for no money down takes advantage of your natural predisposition to throw all logic and sense out the window when greed pays a visit. The argument starts to appear very compelling and you ignore what would otherwise be clear warning signs. Like drunk goggles, greed can mislead you and when you eventually wake up you are often in a very precarious position.
The Fear of Losing
Fear can be equally as dangerous. The most potent and easily manipulated form of fear is your fear of admitting that you are wrong. Fear of having your precious ego bruised. This fear can cause people to do incredibly stupid things. The funny thing about this world is that everyone thinks that they are right. Most people would rather lose thousands of dollars than admit they are wrong. It is easy to feel ashamed of trading losses and live in denial but this is self-destructive behaviour. By denying the problem exists, you fail to take steps address it and only ensure that it will continue in the future.
Demo trading is a great way to get started in foreign exchange trading. It is identical to real trading, except that you're using "pretend" money. Demo trading allows you to get a taste for what type of events move markets and how they move. It encourages you to learn more about geopolitics, macroeconomics and global finance and these are all incredibly positive things.
Demo trading also introduces you to the rapture of greed. Trading is a means to one of the purest, most raw and potent forms of greed. The whole point of trading is to make money and the more money you make - the stronger the pull of your greed becomes. It is intoxicating and can take complete control of you.
But demo trading does not introduce you to fear. There is no fear when you are demo trading. It is like you have a perpetual get out of jail free card. If you start losing badly on a demo account - simply start a new one. There is no accountability for your trading failures and only recognition of your trading success.
So your demo account does not teach you how to handle the emotion of fear. This emotion is most likely going to lead to your downfall. Greed may get you overextended, but fear will stop you from cutting your losses. You may think that fear of losing money would cause you to cut your losses, but the stronger emotion is fear of being wrong and that causes you to hold on to your losing position - until it's all gone.
There is also the issue of account size. Many demo accounts give you $50,000 to play with. This type of capitalization allows you to buy 5 lots (500K) of EURUSD pretty easily. If goes up 20 pips you've made $1000. Nice one. But when you open your real account - it's more likely that you put $5000 or $10000 in there to begin with. Now you're dealing with a 50K lot, which means you'll take $100 out of a 20-pip movement. But mentally you are used to getting $1000 for that movement so you usually end up risking more. Next thing you know - your 200K position has turned against you 50 pips and you've lost $1000. That's real money you just lost. You can't just start another account.
The capitalization of the demo account is sufficient to sustain losses and still come out on top. But your real account is likely to be undercapitalized and if you're trying to achieve returns similar to what you got on your demo account - you are going to blow up very quickly.
Being honest with yourself
Ultimately, while providing an excellent introduction to FX trading - demo accounts do not accurately predict whether you'll be successful trading real money. Markets are dominated by psychology and often go against what fundamental logic or technical indicators suggest should happen. The single most critical factor in your trading success will be your ability to control your emotions of greed and fear. These emotions cloud your judgment and cause you to trade recklessly. Demo accounts introduce you to the emotion of greed, but by their very nature they are risk free and therefore there is no fear involved. They are also likely to be better capitalized than your real money account, which misleads you with respect to the amount of returns you can expect to earn.
For all of these reasons, demo accounts allow you to avoid being honest with yourself and this is perhaps the most important factor of all. You need to know your edge and your limits and in order to know these - you must be honest with yourself.
This being said, demo accounts are still very entertaining and educational and I highly recommend opening one to anyone who's interested in getting a taste of the exciting world of FX trading. It's a great way to learn more about economics, global politics and yourself.
His website - Finance Maps offers free maps depicting short, medium and long range trends for the major currency pairs which allows the reader to easily get an overall sense of the global forex markets in a single glance.
MORE RESOURCES updated Mon. August / 15 / 2022
More super funds calling for speciality currency exchange services Investment Magazine
Crypto as retirement strategy talkbusiness.net
Why so many Nigerians lose money in currency trading Nairametrics
Standard Chartered banks on carbon trading amid muddy second-half outlook - South China Morning Post
Standard Chartered banks on carbon trading amid muddy second-half outlook South China Morning Post
AUD/USD Forex Signal: Consolidating Below 0.7142 DailyForex.com
AUD/USD: A fundamental story FXStreet
Websites close 12,000 accounts encouraging illicit virtual currency trading amid crackdown - Global Times
Websites close 12,000 accounts encouraging illicit virtual currency trading amid crackdown Global Times
Trading Support and Resistance – AUD/JPY, EUR/USD, GBP/USD DailyForex.com
Wall Street headed for 4-week streak of gains Yakima Herald-Republic
Cuba Increases Official Exchange Rate For U.S. Dollars Cigar Aficionado
Do Good Traders Vary Bet Size? Forex Factory
EUR/USD Forecast: Euro Falls into Weekend DailyForex.com
Hundreds of Pinoys learn new trading techniques The Manila Times
6 Forex trading myths | The Guardian Nigeria News - Nigeria and World News — Features - Guardian Nigeria
6 Forex trading myths | The Guardian Nigeria News - Nigeria and World News — Features Guardian Nigeria
Travelers should act now to capitalize on a strong dollar for trips abroad, says travel editor: 'Don't be too greedy' - CNBC
Travelers should act now to capitalize on a strong dollar for trips abroad, says travel editor: 'Don't be too greedy' CNBC
What is a Bitcoin Trading Bot? THISDAY Newspapers
Hyundai ranks 3rd in global vehicle sales in 2022 1st half Investing.com India
Rupee to stay the gaining course on IMF optimism The News International
Viktor Prokopenya, Founder Of Capital.com And Currency.com Voices Support For The New EU Agreement On Ant - Benzinga
Viktor Prokopenya, Founder Of Capital.com And Currency.com Voices Support For The New EU Agreement On Ant Benzinga
USD/CAD: Plenty of Punch and Choppy Results Testing Traders DailyForex.com
10 Best Forex Brokers in 2022: Top 10 FX Trading Platform Reviewed and Ranked - ABC Action News Tampa Bay
10 Best Forex Brokers in 2022: Top 10 FX Trading Platform Reviewed and Ranked ABC Action News Tampa Bay
Reliance Industries celebrates the joy of Independence Investing.com India
Last Week [In] Crypto: CFTC Bans Betting Platform From US Election Wagers, Nepal Looks to Launch CBDC - BeInCrypto
Last Week [In] Crypto: CFTC Bans Betting Platform From US Election Wagers, Nepal Looks to Launch CBDC BeInCrypto
USD/TRY Forex Signal: Lira Opens Weekly Trading Low DailyForex.com
Crypto Trading, Investing Illegal in Iran, Central Bank Governor Reiterates – Regulation Bitcoin News - Bitcoin News
Crypto Trading, Investing Illegal in Iran, Central Bank Governor Reiterates – Regulation Bitcoin News Bitcoin News
What Is Forex Trading? Bankrate.com
Basics of Forex Trading - Part 1 FX Empire
USD/JPY Forecast: USD Finds Buyers Against the Japanese Yen DailyForex.com
Cryptocurrency market will make a recovery: Skybridge Capital’s Anthony Scaramucci - The Financial Express
Cryptocurrency market will make a recovery: Skybridge Capital’s Anthony Scaramucci The Financial Express
BTC/USD Forecast: Bitcoin Gives Up Early Gains For the Day DailyForex.com
Best Forex Trading Platforms: Most Famous Forex Brokers & Traders of 2021 Washington City Paper
What are the Pros and Cons of Forex Trading? RealtyBizNews
What is forex trading and how does it work? The European Sting
4 Ways COVID Boosted Currency Trading Yonkers Tribune.
Why currency trading involves major risks Nairametrics
10 Best Forex Brokers for August 2022 Business 2 Community
Forex (Foreign Exchange) Explained | U.S. News U.S News & World Report Money
How to Know Which Currency Pair to Trade Startup.info
Changing the Top Global Currency Means Changing the Patterns of Global Trade - Carnegie Endowment for International Peace
Changing the Top Global Currency Means Changing the Patterns of Global Trade Carnegie Endowment for International Peace
Moscow Limits Foreign-Currency Trading to Shore Up Struggling Ruble The Wall Street Journal
Bank of America Grows its Global Foreign Exchange and Emerging Markets Macro Trading Team - Bank of America Newsroom
Bank of America Grows its Global Foreign Exchange and Emerging Markets Macro Trading Team Bank of America Newsroom
Can You Make Money Trading Forex? Finance Monthly
Foreign currency trading is substantially growing around the world - The Southern Maryland Chronicle
Foreign currency trading is substantially growing around the world The Southern Maryland Chronicle
Currency Definition | U.S. News U.S News & World Report Money
Why forex trading is not gambling Nairametrics
The 5 Best Forex Trading Platforms of 2021 D Magazine
Forex Trading: A Guide for Beginners The News Minute
Best books to learn Forex Trading from scratch Free Press Journal
Is forex trading a way to make a living? Nairametrics
How to Trade Forex with $100 Yahoo Finance
BC: Tips for Success in Forex Trading Punch Newspapers
Forex Trading TD Ameritrade
Proven Forex Trading Strategies that Work in 2022 BusinessLine
Mastering Forex Trading Psychology Finance Magnates
How to Trade Forex TD Ameritrade
Currency trading in overdrive with dollar at highest level in two decades (NYSEARCA:UUP) - Seeking Alpha
Currency trading in overdrive with dollar at highest level in two decades (NYSEARCA:UUP) Seeking Alpha
Trading Forex vs Futures: Key Differences IG International
The 6 Best Online Forex Trading Classes of 2022 Investopedia