Trading a Demo Account Versus Live Trading.

Thanks to the Internet and the relatively recent availability of online forex brokers, just about anyone with a computer and an Internet connection can open a demo forex account and trade forex with virtual money.
This feature allows newcomers to forex trading to get a better idea about what trading forex involves and also helps them improve their education about the huge largely-unregulated forex market.

Demo Trading Results Can Differ

Nevertheless, new traders need to be aware that the results they might achieve when trading in a forex demo trading account may be quite different from the results seen in a live forex trading account.
Even if a person performs extremely well trading a demo account, their results in a live account often differ considerably. In general, this phenomenon tends to arise because when your own funds are at risk, a different trading mindset often ensues than when trading with virtual money.
This key distinction tends to affect traders in different ways, depending on their psychological makeup.

Other Reasons Why Demo Trading Gives Different Results

Not only does the difference in a demo trading environment involve the psychological aspect, but the general market environment can also differ substantially.
Although a price is easily guaranteed by a broker for a demo trade when no funds change hands, getting that price for a live trade may be an entirely different matter when trading a live account. This can be especially true during a volatile or fast market when slippage often occurs in the execution of orders.
In addition, because of the lack of financial commitment, traders tend to overtrade and deviate from their set trading plans when trading demo accounts.
If you really want optimal results trading a live account, then it would be wise to trade in the demo account as closely and in the amounts that you will most likely trade once you fund an account.
Alternatively, you can just trade small amounts using a micro account to get a feel for a live trading environment before moving up to a standard account and dealing sizes.

Demo Trading Benefits

Trading virtual money removes the psychological element from trading, so for this reason, it cannot accurately assess a person's trading abilities. Nevertheless, virtual trading can have great benefits when testing the performance of a trade plan and also for trader education purposes.
When used as an educational tool, a forex demo account gives novices a risk-free start to trading in the forex market. In addition, strategies can be put to the test without assuming any risk, all in real time trading situations.
Also, live trading involves inherent risks that can affect the trader emotionally, while trading in a demo account tends to limit a person's emotional involvement in trading. In addition, considerably larger positions can usually be taken in a demo account that may lead to what seems like higher profitability, when in fact, the risk-adjusted returns are actually quite low.
Overall, trading in a demo account offers a great service to novices that would otherwise have to learn using, and probably losing, real money. While the emotional rush of risking real money while trading may be lacking in demo trading, trading a demo account allows you to learn to watch the market closely and can help you get a better feel for how the forex market operates without putting any real cash on the line.