There are two issues which affect the transition from a demo account to a live forex account. One is the ability to read the markets, understand technical and fundamental analysis, and also keep up to date with economic and political events and news. Then using these skills the trader recognizes the signals to buy or sell a currency. This skill is teachable and learnable. However, the second issue is not easy to learn because it has more to do with emotion rather than logical thinking. The issue is fear and greed.
Every day, online FX brokerage firms pull in new investors, each one looking forward to making their fortunes in the comfort of their own homes. As most companies let you practice your trading skills on free demo account you get the experience of the excitement of trading currency. Many traders find they are able to earn notable profits without much effort. However, continuing this demo account success on a real account is not so easy.
Why not? The trading platforms are exactly the same, and the markets behave in exactly the same way, so there is no excuse for saying that the platform was confusing or the market behaved abnormally. In reality what has happened is that the trader has allowed the new factors such as fear and greed to cloud his judgement.
So while demo trading allows you to learn and understand why exchange rates move, and why the market reacts in a certain way to certain events, you are still trading with pretend money. You feel confident about the trading signals you interpret and are quite happy to ‘punt’ $50,000 to go long or short on a particular currency pair. Whether you make a $1,000 or lose a $1,000 on the trade you don’t feel fear, you might feel greed, but never fear and certainly not the two together. If you win you feel good, if you lose then you reanalyze the signals and see where you went wrong or you open up a brand new demo account.
The transition from being a successful demo account trader to being a successful live account trader depends on the trader understanding himself. It’s easy to understand that you have the skills and the fx knowledge to trade successfully. It’s not so easy to be able to say to yourself that you have conquered greed and that you don’t make decisions from fear. However, once you can be truly honest with yourself then you are ready to make the transition from demo to live account.