Whenever you enter the forex market as a beginner, you’ll find yourself inundated with terms and jargon that can be incredibly hard to understand.
These add an unique layer of depth and complexity to the market, while creating a challenge for traders to master if they’re to avoid losing money and joining the 70% of forex investors who are unprofitable.
Two slightly different terms that are often used interchangeably are ‘demo account’ and ‘forex simulator’. But what’s the difference between these two entities, and which one offers the most value at your particular stage of learning?
What’s a Demo Account?
Demo accounts are essentially part of the free package that brokers provide when you open your account.
The premise here is relatively simple. More specifically, you’ll open an account that can be operated for a period of up to six months, with this providing you with access to a simulated marketplace that replicates real-time market conditions.
This enables you to trade, build a viable strategy and experiment with different assets and currency pairings, with the only difference being that you’re awarded a specific amount of virtual money with which to operate.
You can also use this capital to pay for so-called “rollover changes” and spreads, just as traders do when investing in the corporeal forex market.
Interestingly, demo account users will have full and comprehensive access to a compatible trading platform (usually the MetaTrader 4) and detailed news and analytics, while default technical indicators, trading charts and other instruments will also be available on demand.
What’s a Forex Trading Simulator?
This brings us neatly onto forex trading simulators, which are often incorporated as part of the offering when you open a demo account.
In simple terms, a forex simulator is a piece of intuitive software that simulates real market conditions, with the majority utilising relatively simple algorithms that effectively mimic broader market activity.
However, a growing number of simulators reflect live market data, narrowing the gap between this type of software and demo accounts and offering a far more authentic trading experience to investors as a result.
Simulators also ensure users a significant level of control over their budget and timeframes, so associated apps include a huge amount of information on the key considerations when trading specific currency pairs.
For example, you may use a forex trading simulator to access and view historical data, in order to ascertain price action and the movement potentials associated with your target currency pairing.
As we’ve already touched on, this type of tool can usually be leveraged for free, alongside a similar stock simulator that works in much the same way.
What’s the Difference Between a Forex Simulator and Demo Account?
As we can see, there are numerous similarities between forex simulators and demo accounts, particularly in terms of their free to access nature and ability to simulate market conditions.
The main difference between demo accounts and most forex simulators is that the former replicate real-time market conditions, whereas the latter tend to recreate conditions from an historic point in time.
In this respect, a demo account is a live simulation that tends to mimic prices and conditions very closely, whereas simulators aren’t as up-to-date and instead replicate a particular scenario or previous timeframe.
So, while both platforms can be used to trade freely and develop strategies for specific market conditions, each offers something a little different to help underpin your forex education and journey.
For example, demo accounts provide a direct insight into the precise challenges of trading in the real-time market. Conversely, forex simulators are best used by someone with existing knowledge and understanding of the forex market, and the underlying laws that govern price changes in this space.
The Last Word
While the terms ‘demo account’ and ‘forex simulator’ tend to be used interchangeably, and share a number of similarities, they’re also separated by a number of key differences.
It’s important to understand this as a forex trader, as choosing the right assistance can prove key in building both your theoretical and practical understanding of the marketplace.
In simple terms, demo accounts are ideal for beginners who have just registered with their first broker and want to bridge the gap between theoretical knowledge and practical trading experience. This is also a completely free platform, and one that has played a key role in creating the current generation of younger and part-time traders.
In the case of forex simulators, these are somewhat more advanced and require a little more knowledge and understanding. So, they’re arguably better if you’re looking to test out a new or specific strategy, but have an initial foundation of experience on which to build.
You should also note that some brokers actually charge for the use of a forex simulator, and in this case, it’s crucial that you understand the software before you get started.
