Practice is Worth Its Weight in Gold for Traders

Wednesday, September 16, 2020


Are you new to trading and wondering about the best way to proceed? Do you feel overwhelmed with information about technical indicators, fundamental analysis, research, order placement, foreign exchange rates, account regulations, and other factors that typically occupy the mind of trading enthusiasts? If so, you are not alone. In fact, everyone goes through a period of uncertainty in the beginning. The answer is to persevere, have patience, and remember to use the tools on brokerage platforms for practice.

The better platforms offer simulators that allow new members to use a demonstration account, or a demo account, to learn the ropes of all kinds of skills like purchasing stocks, buying and selling bonds or options, and getting involved in Forex currency trading. For instance, foreign exchange enthusiasts are often baffled by the way pairs trading works, especially at first. The ideal remedy is practicing on a forex demo account. Of course, you can do the same with any other instrument, like stocks, cryptocurrency, bonds, or whatever you prefer. For the sake of example, we'll take a look at how people use foreign exchange demo accounts to hone the skills needed in the real world of pair trading.

Platform Uniqueness

It's important to remember that no two demo platforms are alike. Even if you've already become a Forex pro on another one, you'll still need to use this practice to learn the new platform's nuances. This is an especially important factor because your money will eventually be at stake. You want to be totally comfortable making purchases and sales of currencies, almost to the point that getting into and out of a position is second nature.

Tax Issues

Everyone's tax situation is different, but it's important to learn how your chosen platform records profits and losses so you'll be able to file an accurate tax return. After the first 50 or so demonstration trades, check your account's section labeled tax or something similar. Under that tab you should find a detailed list of each purchase and sale you made, your amount of profit or loss, and the exact date of the purchase and the sale, no matter how close or far apart they were in time. For tax filing, you'll need at least that much data, perhaps more. It's imperative to check out this function as you continue to make practice trades. Later on, revisit the taxation tab to see if all the information was recorded correctly. Also, find out if your account offers annual and/or quarterly tax statements that you can download easily into a printable format.

Order Placement

Perhaps the single most essential skill you'll gain from practicing is how to place and exit orders. Along with simply buying a fixed amount of a currency pair, you need to know about the different types of orders, how to set stop and gain loss points, and how to check on price changes from second to second. Finally, when you decide to pull the plug on an order, you should know how to exit (sell) on a moment's notice. When you delve into the world of real money, your money, making a fast exit when prices are going the wrong way can protect against potential losses.

Strategy Testing

Even after you feel confident with using your own capital, it's a good idea to return to the simulator whenever you decide to try out a new strategy. Even some of the world's most experienced Forex pros use fictitious money as a way to experiment with new ideas and approaches. It's an ideal way to build confidence and see whether a new theory has any merit or should be discarded.

Regular Practice

Make a commitment to yourself to spend time in the demo environment on a regular basis, perhaps for an hour each week. Even when you have all the mechanical skills of order placement under your belt, returning to the field of practice and rehearsal is a reliable way to rein in the urge to over trade. Simulators are not the real thing, and they don't replicate the actual conditions because people realize that it's fake money, after all. But even thought that is a valid criticism, there is no substitute for rehearsing. Actors do it in front of empty theater seats. It's not the real performance, but they gain so much from making the effort.

Starting to Use Real Money

There's no set, magic formula for easing into the use of real money. However, many people find that after they leave the protected world of the demo account, they gain solid confidence by making numerous small trades for a few days before upping the amount they put on the line.

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