The best way for beginner forex traders to become acquainted with the forex market is to trade on a demo account.
But where do you get a free demo account to practice trading?
Don’t sweat the small stuff. Many forex brokers offer a free demo/practice account. To access the demo, you only need to sign up on the broker’s website for free, and you are good to go.
Practice or demo accounts are funded with ‘virtual money’. You are free to use the virtual money to place trades in the market. Any profits made on a forex demo account cannot be withdrawn, neither can loses be debited on your account.
Why Demo Accounts?
Practice accounts give you a great opportunity to experience the live forex markets without putting any of your money at risk.
- You can analyze how prices change in different times of the day
- You can see how the behavior of different currency pairs differ from each other
- You can see how the forex markets reacts to different news releases
- start analyzing charts and improve your understanding of how margin and leverage work
- You can use a demo forex trade account to strengthen your strategy before putting it live
Using a demo account, you can start trading in real market conditions without the fear that you are going to lose money. If you are looking for experience in forex trading, a demo account is what you need.
Demo/practice accounts are also an excellent way of testing how a certain broker’s platform works. Unfortunately, there is one thing that you can’t simulate on a demo trading account: the emotions of trading. To get the best out of your trading account, you will have to treat it as if it contained your hard-earned money.
Getting Started With a Demo Account
I assume that you have already signed up with a forex broker of your choice. If you haven’t, I recommend you do so right now. Here are our recommended partners.
There are two broad ways that you can trade forex on the markets. You either place direct orders using a click-and-deal featured on the MT4 or you employ orders to be executed when the market meets certain conditions.
Placing Click-and-Deal Orders
Many forex traders love trading the market at its current positions (click-and-deal orders). They love the certainty of knowing they are in the action as opposed to placing an order that may or may not be placed. This ‘live activity’ is part of what makes the forex market so alluring. It is like sitting in a room full of stock brokers shouting their orders (think the Wolf of Wall Street!)
Most forex brokers provide trading platforms that give you the live stream of currency prices in the market. These platforms will allow you to place a trade with a single click of your mouse button.
To place a trade on such platforms,
- Specify what amount you want to trade
- Click buy or sell
The forex platform will respond instantly, mostly within a second or two. If the trade went through, you will receive a popup notification and your MT4 will update to show your open position. If the price changed in-between you placing the order, the platform will notify you that the trade did not go through.
The order might also fail to go through if your trade is larger than the margin allowed. In this case, you will need to reduce your trade size and try again.
One important thing to keep in mind when trading on a click-and-deal platform: Any action you take on the platform is your sole responsibility. You might have meant to click “Sell” instead of “Buy”, but no one knows for sure, except you.
Using Orders on a Demo Account
Orders are an important part of the forex market. They are trades waiting to happen. Savvy forex traders use orders to catch market entry points that would otherwise elude them when they are not in front of a trading screen.
Recall that the forex market is open for 24 hours a day, 5 days a week. A market move is as likely to happen when you are in front of your screen as when you are deep asleep. If you have a daytime job, market moves are also most likely to happen when you are deeply engrossed in your boss’s menial work.
Orders are how you are able to capture market moves and enter trades when you are not in front of your trading screen.
But orders are have more uses than simply capturing market movements when you are asleep. I can’t emphasis the importance of using orders strongly enough. In a highly volatile market, using orders can help you capitalize on quick market movements while limiting the impact of negative market moves on your account.
Common Forex Market Orders
There are many type of orders available in the forex market. However, all orders are not available with every online broker. Before you sign up for a forex account with your broker, you will need to verify whether they offer all orders that you might want to place during your trading career.
Take profit orders
Don’t you just love the name!
Take profit order are used to lock in the profits that you have already accumulated on a trade.
Limit orders
A limit order is an order that triggers a trade at a more favorable price than the prevailing market price. A classic example of a limit order would be “Buy low, sell high”
Stop loss order
This one doesn’t sound so good, does it? But don’t ignore it. Among all orders, the stop loss order carries more significance and is critical to your success as a forex trader in Kenya.
In their most conventional use, stop loss orders will close a trade that is losing money. In your case, you’ll be using stop loss orders to limit loses to an acceptable threshold. If you do not set stop loss orders, you are leaving your account at the mercies of the market, which is nothing short of financial suicide.
Trailing stop-loss orders
One of the keys to successful forex trading is limiting the size of your loses while exponentially maximizing your profits.
The best way to do this is to let your winning positions run and stopping your losing positions. A trailing stop-loss order does exactly that. It will adjust its order rate as the market move, but only in the direction of your trade. For instance, if you are long CHF/CAD at an entry of 1.5750, and you’ve set a trailing stop-loss order at 30 pips, the stop will first become at 1.5720.
If the CHF/CAD moves higher, the trailing stop adjusts itself, pip for pip. It will continue to adjust higher as the market moves higher. If the market reaches its peak, the trailing stop will be 30 pips below the top. If the market ever moves down by 30 pips, your trailing stop-loss will be triggered and your position will be closed.
To the savvy Kenya forex trader, a trailing stop is a powerful order.
One-Cancels-the-Other Market Orders
Also commonly referred as OCO’s, a one-cancels-the-other market order is a stop loss order paired with a take profit order.
An OCO is an incredible insurance to a savvy forex trader. All positions remain open until one of the order levels is hit. When one order level is triggered, the other one is simultaneously closed.
For instance, if you are short on USD/JPY at 117.00 and you believe that the currency will keep moving up once it hits 117.50, you’d place your stop loss order at that point. At you then place your take profit here.
The above scenario has clearly marked out your playing field. If the USD/JPY keeps playing between 117.49 and 116.26, your positions will remain open. Conversely, if the market hits 116.25, your take profit order is triggered and you walk away smiling. If 117.50 is hit first, you’ll suffer some clearly pre-demarcated loss, nothing to worry you so much.
OCO orders are highly recommended for every order you have open in the market.
Managing Trades on a Demo Account
At this stage, you have placed orders and placed all the requisite orders. Is it time to sit back, relax, and watch the market do its thing, right?
Not so fast, amigo.
The forex market is not some form of gamble where you roll the dice and wait for Lady Luck to smile upon you; it is a dynamic environment where variables that influence your trades are constantly cropping up. These variables alter the way prices develop and render previous price expectations null.
A lot can happen between the time you set up your trades and the time they hit their targets. Forex trading is not a set-it-and-forget it kind of a thing. You need to keep abreast with market developments.