Managing Risk on a Demo Account

Forex brokers provide a nice large balance on a demo account by default. They know that this will encourage the notion of easy money and encourage beginning traders to bet big. This can result in the trader opening a live account and having the same notion that beating the market is easy with big bets.

1. Ask for a reduced account balance

Most traders are not going to start with $50,000. Email or call your forex broker and ask to have the demo account balance reduced to a more realistic amount for a beginner. $5,000 would be a reasonable amount to ask for.

2. Reduce leverage

Ask the broker if you can lower your leverage to a maximum of 20:1. This will force you to be more realistic with how big you can trade and how deep in the red you can allow yourself to go.

3. Limit the pairs you want to practice trading

While learning it is best to stick to 1 or 2 pairs that are not correlated. This will keep your focus sharp and keep you from getting into too much trouble.

4. Treat the money as real

Act as if the money in your trading account was in your checking account. Remember once you go live, the money is real, and it can disappear very quickly if proper risk management is not used.