A Crash Course in Online Forex Trading-How to Use a Demo Account to Start Trading Faster

a practice account (aka a “demo account”) lets you practice placing Forex trades online on a free online platform. This platform lets you place buy, sell and hold trades with essentially fake money, so you don’t lose a dime of your trading account while you’re learning to place Forex trades.

Today, I want to expand on that idea…and give you a quick crash course in how to use these demo accounts to place your first practice trade.

Most FX dealers (read: “Forex brokers”) offer demo trading stations for new traders. It’s often a two-step process. First you download their software. Then you fill out their form so they can email you a free username and password to use your new demo account. Once you’ve completed that two-step registration process, you’re ready to begin.

Note: Some FX dealers use java-based platforms, which don’t require downloading. While these platforms can be convenient, they usually aren’t as stable to trade on. However, if your dealer uses java, then you can obviously skip the “downloading their software” step and simply sign up for a username and password for your new account.

How to Read Your New Forex Platform

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If you’re trading currency pairs, you need to understand what you’re looking at. So first thing’s first…let’s look at how to read a quote.

As you can see in the image, we’re trading the euro vs. the U.S. dollar (EUR/USD). The EUR/USD pair has two prices: A sell price and a buy price. The difference between these two prices is called the spread.

So if the EUR/USD quote is listed as 1.5526 to sell and 1.5528 to buy, then there’s a two pip difference (1.5528-1.5526 = 2 pips).

However, you will notice a “fractional pip” value also to the right of the quote. This makes the spread slightly cheaper. Therefore, the exact spread price at this moment is 1.9 pips (as shown in the top circled area.).

So what does a quote tell us? It tells us how many dollars equal one euro. At the time of the screen shot, one euro was equivalent to just over US$1.55. So if someone handed me one euro, to give them the equivalent “purchasing power” in dollars, I’d have to give them US$1.55 to be the same. (By the way, today the euro was selling for about US$1.37, so this is a slightly dated quote.)

Now that we know how to read a quote, let’s take a look at the chart to see where the euro may be going these days. This way we’ll get a bias as to whether we should be buying or selling the euro/dollar pair.

Euro Heads Higher, So I’m Buying!

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As you can see from the EUR/USD four-hour chart above, the EUR/USD pair broke its red downtrend line as shown by the black boxed area. Now it’s bolted higher.

Let’s say we think that newly established trend will continue on. If so, we’d want to place a buy order in anticipation of the pair heading higher.

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On your trading station, you can click on the quote of the EUR/USD and a market order box will pop up.

Make sure the pair you want to trade (EUR/USD) is listed in the symbol field. Then click on “Buy.” Choose your number of lots. The example above shows two mini lots (20k or 20,000 units of currency). Then just click on the “OK” button and your order is submitted. You’ve just bought two mini lots of the EUR/USD pair.

Doing demo is quite different from live accounts but it is like a warm up rehearsal to the real thing.