It is always sensible starting off with a demo account. Most online trading platforms and brokers offer demo accounts to registered users. You can dip a toe in the water without risking any of your hard-earned capital. Test your trading strategies, learn the ropes, and decide whether online trading is for you.
The next step is to step up to a live account. But how do you know if you are ready to make the switch? After all, if you upgrade too soon, you could lose a lot of money on badly executed trades. Scary!
There comes a point in any wannabe trader’s life when s/he needs to take a leap into the unknown and start trading for real. Yes, it’s a big step, but if you tick any of the following boxes, you are probably ready to take that step.
You Understand How Trading Works
It should go without saying that before you go ‘live’, you do need to have a good understanding of how your trading platform works. One of the benefits of trying a demo account is that it gives you an opportunity to test the water. Use this time wisely.
Check out all the analytical tools and familiarize yourself with your broker’s pips. Check whether your broker offers the currency pairs you want to trade. This is especially important if you want to trade bitcoin or another cryptocurrency.
You are Making a Profit
One or two big wins is less important than consistent profitability. All forex traders make big wins or suffer losses from time to time. The forex market is highly volatile and there are many factors that affect currency prices.
Rather than focussing on major wins or losses, look at your overall profitability over a longer timeframe, e.g. three months or more. If your trades are consistently profitable, you are heading in the right direction and your trading strategy is sound. This is a good indication that you are ready to upgrade to a live account.
You Don’t Get Too Carried Away
It takes a certain type of person to become a successful forex trader. Anxious types and those who lose their heads when the market goes crazy are not best suited to trading. They tend to make rash decisions and don’t cope well when they hit a losing streak.
Success traders stay calm under pressure. They are blessed with analytical minds and can see clearly, even when losing money. If you have a trading plan and are able to stick to it, even when trades are going in the wrong direction, you have what it takes to start trading for real.
Do these three factors guarantee success in the forex market? No, they don’t, but they do make it more likely you won’t lose your life savings on an ill-advised trade.
Don’t be in a huge rush to move from a demo account to a live trading account. Only make that move when you feel 100% ready. The more comfortable you are when trading forex, the less likely you are to lose everything.