5 Signs You're Ready to Open a Live Forex Account

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Takeaway: Demo accounts are great training tools. However, spending too long trading demo accounts can actually make the leap to a live account more difficult.

5 Signs You're Ready to Open a Live Forex Account
A big jump, but not quite as scary as this.
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This article was provided by ForexBrokersAZ.com

If you're new to Forex trading, timing your move from a demo to a live account is one the first challenges you'll face. Move too early and you could blow up your account in the time it takes to read this article. Move too late and you could have lost a wealth of trading opportunities. Here are five signs you're ready to open a live Forex trading account.

1. You're Making Steady Gains

If your trades are always in the money, you can and will probably already have moved on to a live account. However, you're unlikely to hit the bull's eye with every trade unless you're the next George Soros. Losing every now and then is part and parcel of the game. So the question becomes, "when is it safe enough to switch to real money?"

If a majority of your trades turn a profit and you genuinely believe the outcome is primarily down to skill rather than luck, you should consider opening a live account. For example, you could set yourself a 7:10 threshold whereby 7 or more of your last 10 trades should end in the money before you even consider opening a live account. However, there is no blanket rule as to how many trades should be in profit before taking the plunge - gut instinct should be your best friend in this instance.

When assessing performance, we suggest looking at the number of winning trades rather than the overall profit and loss figure because one large trade could offset a string of smaller trades, skewing the assessment of your performance (for good or bad).

2. You Have a Strategy

The world currency markets are volatile and open round the clock, even as you sleep. Volatility creates opportunities to profit; however, it can also work against you and put your capital at risk unless you have a risk management strategy.

Your risk management strategy need not be overly complicated:

  • First, you should be familiar with the different Forex trading orders. Stop loss orders and take profit orders can help mitigate losses and lock-in profits gradually. They are simple yet effective ways to mitigate risks.
  • Forex trading accounts for beginners can come with leverage ratios up to 1:500 and even 1:1000. However, this doesn't mean these levels are desirable. Leverage magnifies your profits and losses if prices move against you. Use a demo account to get a good feel for how leverage works and the levels you're comfortable with before you open a live account.
  • Last but not least, you should set risk management rules across your portfolio. This can include anything from setting a limit on the percentage of your portfolio to risk at any one time, a dollar threshold on losses or committing to taking a break from trading if you experience a string of losses.

3. You Can Keep Your Emotions at Bay

If you're into day trading, you probably love the adrenalin rush that comes with market movements. If you're more of a position trader, you're more likely to take a step back and consider long term trends before planning your next move.

Whatever your trading style, it's remarkably easy to get distracted from your course. A winning streak could give you wings and encourage you to take on excessive risks. Likewise, a string of losses could prompt you to keep your Forex positions open just a little longer in the hopes that your fortunes will reverse.

Whatever your trading style, it's always a good idea to keep your emotions at bay. That means abiding by whatever risk management and trading strategies you laid out. Check out the Top 10 Mistakes That First Time Forex Traders Make for more information.

4. You've Learnt From Your Mistakes

If your demo account is loss making by month end, don't let those paper losses curb your enthusiasm. Review your trading history and challenge your assumptions to learn from past mistakes.

If you trade over the MetaTrader platform, you could use Expert Advisors (computer programs) to back test variations on loss-making trades. This is an opportunity to understand what went wrong and uncover new trading strategies.

5. You Know Your Trading Platform Inside Out

Last but not least, make sure you have a good understanding of your broker's strengths and weaknesses. Open demo accounts with more than one broker and test-drive their platforms at different times of the day - at the start and end of a trading session for example - and around news events. Watch out for execution speeds and spreads at those times of the day. You'll want to open a live account with a broker that delivers a fast and responsive service at all times, in particular when markets are volatile and opportunities to profit are greatest.

When comparing one broker's execution against another, it's important to remember that demo accounts cannot simulate slippage or re-quotes. This is because demo trades aren't executed against actual liquidity. Read reviews of brokers or talk to other traders in online forums to get a feel for how your broker is likely to perform in a live environment.

Making the Leap

Summing up, once you are seeing some success in implementing your strategy on your chosen trading platform and are able to keep calm and learn from any mistakes going forward, you are a good candidate to make the leap to a live account. Demo accounts are great training tools, but they lack some of the market realities - like slippage and re-quotes - that you will face in a live account. They are best used as a temporary training ground while you master the basics: spending too long trading demo accounts can actually make the leap to a live account more intimidating.

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