How To Do Simulated Forex Trading

So I'm sure you have heard by now that foreign currency trading or foreign exchange or forex is the largest financial market in the world. Bigger than any stock, bond, future or options market.

This is true. It is also true that you can make (or lose) a lot of money in forex because of the leverage. Leverage allows you to control several times the amount of money that is in your account. In the right hands, this can grow your account faster than you could ever imagine. In the wrong hands, the use of leverage can wipe out your whole account within a matter of minutes.

So how do you become someone with the "right hands?"

Just like any other endeavor, you have to practice and hone your skills. Luckily, forex is one of the best markets to do this in because it allows you to do a lot of testing before you risk real money. The following two sections outline the two ways that you can practice forex trading without losing any money.

The best way to start your forex trading career is to find out what happened in the past. Although past performance is no indication of future results, you need to get a feel for how your market of choice moves. Just pick a pair of currencies and use simulated forex trading software to start watching how the pair moves.

Use a notebook to jot down some observations you have about the currency pair. Pay particular attention to how the pair reacts at even numbers and previous highs and lows. Once you start to get a feel for how the pair moves, then start formulating a trading plan. Start executing buy and sell trades and see how you do.

Of course you won't start making money on the first try, but keep at it. If you start to get frustrated, take a break and do some reading. Find out what other successful traders are doing and try their techniques. Since you are only doing simulated forex trading, try everything! Sometimes even the most ridiculous seeming trading plans can turn into viable strategies when properly tested and refined.

Now that you have done some testing, you need to put your new skills into action! Check out the next section on how to do some real-time testing.

Now that you are somewhat comfortable with a trading plan, you have to try it in action. Luckily, you can try it out in live market conditions without risking a dime. Most forex brokers offer demo accounts, which is real-time simulated forex trading.

Instead of being able to go forwards and backwards in time like with the back testing software, this is all forward testing, you don't get any "do-overs." You now have the opportunity to see if your strategy works in present market conditions. Take careful note of your emotions and see if you react the same as you did when you were back testing.

Like with the back testing, be patient with your demo trading. Just because a trade was not successful two times in a row, doesn't mean that it is a bad strategy. Keep at it, you can do it.

When you are successful with demo trading, it is time to open a real account with real money.  Remember to keep your trades small while you are learning but do not be afraid to put in more money once you become consistent!  In my opinion, this is the best trading market in the world.  Good luck and remember to have fun!

Trading currencies (or any other financial market) involves substantial risk, and there is always the potential for loss. Before deciding to invest in foreign exchange (or any other financial market), you should carefully consider your investment objectives, level of experience, and risk threshold. You could sustain a loss of some or all of your initial investment, and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent certified financial adviser if you have any doubts.