Although considered to be extremely useful and beneficial, forex practice accounts have their disadvantages. Before, we discuss the disadvantages, it is necessary to know what forex practice accounts are.
Forex practice accounts allow new traders to practice Forex trading with any cost. It is done mainly to target new traders and develop their interest in trading. This helps the brokers to increase the number of traders and allow users to learn trading free of cost.
Since, foreign exchange trading is not an easy task, many brokers have designed products that allow new traders to learn trading with very low deposit costs. Some traders offer free practice accounts where beginners can trade with imaginary cash until they are trained well enough to trade real money. This prevents beginners from risking real money.
While, this may appear to be a very attractive way of learning forex trading, however, when dealing with imaginary money, the risk of losing money is non-existent as the cash available for trading is unlimited. When you know that you have endless money and that you may not lose real money, users end up taking risky deals just for fun.
Although this may be harmless when trading imaginary money, yet, when dealing with real money, it may instill a risk-taking behavior. For example, while dealing with imaginary money, you may take up a risky investment and may gain lots of money on that deal. This will boost your self-confidence and you may believe that it is easy to earn money and start taking uncalculated risks.
After you have been successful in your imaginary deals, you start believing that forex market will earn you unlimited money and you believe that you are ready for trading real cash. This lures new users into trading real money. They may make a risky decision, tying up a large percentage of the money they own and when the deal fails, their forex career is over and they have incurred huge losses. This would mean that when trading real money, any practice with imaginary money is useless.
However, if you do not rush into opening up a real account, you may learn a lot about forex trading. Practice accounts require lots of self-control and you need to avoid investing in deals that you may not invest in with your real money. Brokers also offer mini accounts with maximum $25 deposits. Since, this is your own money, you may make sound decisions. Moreover, to avoid losing money, start with low deposits so as to avoid significant losses.