The Forex and CFD market is very dynamic and a lot goes on there on a daily basis. It is an international market of foreign exchange and contracts for differences, which is influenced by a number of different factors. It creates possibilities of high earnings, but at the same time, the risk of loss is also significant. Young traders, i.e. investors who want to invest their funds on the Forex and CFD market, must make every effort to learn about it and invest on it without the need to take excessive risks. For them, demo accounts are available on trading platforms. What should be taken into consideration in order to pick the best one?
A demo account for a young trader
In fact, brokers typically do not limit the possibility of using the demo account, i.e. test account, exclusively to traders who are just beginning their investment adventure. Such an account is an investment account, but one on which the trader does not deposit their own funds. Instead, they receive a certain pool of virtual funds from the broker. They do not own these funds and therefore neither gain nor lose anything when assuming buy and sell positions on selected currency pairs or CFDs. They can test the trading platform, conclude transactions, check subsequent investment strategies and use leverage in conditions which are very similar or even identical to those experienced on a daily basis by investors using real investment accounts and their own capital.
It is worth knowing what parameters of the demo account are the most important ones when choosing it. Do such accounts differ at all from one another?
Three types of accounts
It should be emphasised that the offer of brokers on the Forex and CFD market is extensive and assumes keeping various accounts, including demo ones. These are: MM — Market Maker, STP — Straight Through Processing and ECN — Electronic Communication Network accounts.
MM accounts are appropriate primarily for beginner traders because at the time of conclusion of each transaction, its other party is the broker, which is the market maker and the supplier of liquidity. However, sometimes there may be a conflict of interests between the broker and the trader because the money lost by the investor also means profits for the brokerage firm (check XTB Global Broker).
STP accounts are characterised by the fact that the broker is no longer a participant of and party to the transaction, only an intermediary in its conclusion. Therefore, in such an arrangement, there is no risk of a conflict of interests between the client and their broker, who merely charges commissions for orders, albeit not in the case of a demo account.
The third type of demo accounts are ECN accounts, which give clients direct access to the interbank market. However, accounts of this type will require large deposits and are offered by few brokers.
Knowledge about the types of investment accounts on brokerage platforms is important because the client should use the demo version which is the same as the one they want to use for trading with real funds.
Duration of the trials
When choosing a demo account on the selected broker’s platform, it is important how long such an account can be used. Do the trials have any time limits at all and will the broker oblige its client to open a real account upon their completion, or does using a demo account not result in a simultaneous obligation of this kind? Such issues are worth considering in order to select a demo account which supports testing the brokerage platform for free.