What to Look for when Trading Live

AndrewBezen posted on 03/24/17 at 01:04 PM

Volatility is the name of the game in Forex trading. This is what attracts traders from around the world: the possibility to make a profit fast. No one says that this is an easy task to be done, but, nevertheless, it is true. It is possible to make money fast in the Forex market. Before trying to do that, retail traders need to know the difference between a demo and a live fx trading environment. Most Forex brokers, if not all of them, are offering the possibility to trade in a demo account before opening a live one. This is recommended for anyone willing to trade with a new broker. A demo account offers the possibility to see how trades are executed, spread conditions, get familiar with the trading platform, and even test strategies before applying them on a real-time environment. However, there’s a catch! Trading a live account is different from at least the following points of view.

Live vs. Demo Trading

First, there is the psychological factor. While it is easy to double or triple a demo account, it is a totally different story to do that on a live account. The problem comes from the psychological factor. On a demo account, emotions are not present as the trader is detached from the trades. Because of that, trades are left reaching take profit, and so on…everything that needs to be done in real trading. On a live account, this is not done properly. Emotions are intervening, trades are questioned, and small spikes that go against the original trade are used to exit a trade at the wrong time and place. Thus, performance in a live account is different than the one in a forex demo account .

Second, execution is different on a live account than on a demo one. It depends very much on the technology the brokers use as well. ECN (Electronic Communication Network) brokers are offering access to the interbank market but the execution is subject to the market. This means that when there is an important economic event, like the Non-Farm Payrolls in the United States or a central bank’s rate statement is about to be announced, volatility is rising. Together with volatility, spreads are rising to. A spread is the difference between the bid and the ask price in a currency pair. The bigger the spread, the bigger the transaction costs associated with trading that currency pair. As a rule of thumb, trading conditions in a live account are different than the ones in a demo account.

Moreover, slippage is a problem there is not seen at its true extent in a demo account. Slippage is related to the execution level. For example, when a pending buy stop order is placed at a specific level and if the execution is happening during an important economic event, the order will be filled at a higher price. That is called slippage, and the bigger the difference is, the poorer the execution and the bigger the opportunity cost associated with it. These are only some things to consider before deciding to trade a live account, and, while it is not looking like mandatory, trading with a demo account first is recommended. This way, the trading platform and the broker’s conditions are known before committing funds to a live account.

Moreover, market conditions are different from broker to broker. Not all currency pairs, for example, have the same swap on the same currency pairs. This is different based on the type of the trading account, as well as on the type of the broker. All this make the process of choosing a Forex broker a complicated one.

Report

Posted by AndrewBezen on 03/24/17 at 01:04 PM

Comments

You must Log In to post to this blog.

Not a member? Register Now to …

  • See what other traders are doing
  • Make your own trades public
  • Share your thoughts on a trade
  • Join or start a group
  • Connect with like-minded traders