Forex demo account - when do you switch to real trading

For those who already have a grasp of forex trading

This article is mainly for those who already have a grasp of forex trading, have opened their forex demo account and have traded for a while. Now the word "a while" could have a very broad meaning in a forex context. One trader might have traded successfully for a couple of months and with some knowledge and experience developed his own profitable system and forex trading strategy with SOUND money management. I am not talking here about 20% or even 10% balance risking for one trade. 

You have to leave your emotions outside your trading room

Another, not so successful trader, might still be struggling on finding his method of trading. In fact, he might never have the abilities to trade in forex. Yes, you could be the one who should avoid this particular means of making money. Why? Because it's a kind of a psychological game of probabilities. Just because you are never sure, if you loose today, tomorrow or even for the whole month. If this particular thought frightens you - no offense, but I think you would be better off working somewhere, where you know exactly what you will get for your hard labor. If you want to be sure, what you will get per hour, per day, per month, etc. - forex trading is not for you. On the other hand, if you are very emotional, you throb into tears finding out that you lost 100 dollar bill while walking down the street or jump out of joy when you accidentally find a dime - trading forex investment might not work for you as well. You have to leave your emotions outside your trading room. If you can do that - you could succeed.

So emotions out, and your forex trading system in

So emotions out, and your forex trading system in. If you have traded enough or for a while, you should have developed some kind of profitable forex system. You must already chosen currency pairs to trade

If you have some kind of trading strategy - fine, but have you been testing it long enough?

You must have also developed this set of instruments for at least a half a year. Why so long - because forex currency pairs' movements change drastically in a couple of months, not mentioning years. New strong currency trends appear and they could last for a year, or the opposite - flat movement lasting the same amount of time, and whipsawing every trend trader. If you have some kind of trading strategy - fine, but have you been testing it long enough? If you apply breakout strategy - you will be lucky to jump on an early rising or falling trend and gather some pips. However, what if a trend has exhausted? And after that it will move sideways a couple of months, whereas you desperately want it to break the old trend line and move in the opposite direction? You continuously place loosing orders, because the price just broke the top or bottom and suddenly jumped back with a new momentum wiping out your stop loss. You must me adapted to currency trend changes and this experience comes with time. Even if you trade in a small time frame, like 5 minutes - even then it's not enough to trade successfully for a short time period. I know one trader who has been trading for 5 years and he has been a very successful trader. He has been using a very small time frame forex trade signals, and a pipsing strategy, which I thought was invincible to rapid and big movements. However, during the last eur/usd fall for 3000 pips during 2009 - 2010 he lost everything he earned in those 5 years. What makes you think, you are better than he is? He now is looking for some money to invest further in forex, because this huge trend is finally ending, and we might see some bigger correction (this is only my guess). His pipsing strategy could be profitable again, but the only difference is that he has no capital to invest.

Are you able to identify the timing of your strategy use?

You should sit still and do nothing if your strategy is based on particular price movements and these are not present so far. You can only use those methods when the price itself along with indicators confirms the movement change.
I don not even mention about the profitability of your trading system in the long run. You only switch to real account when you trade profitably in your forex demo account, that is out of the question. If you have several forex systems and those do well in different times and price changes - good, but be careful as to identifying those changes.

The last, but not the least - profitable trading with small leverage and risking  less than 5% of your capital with your demo account. This is arguable, of course, but that is only my opinion.

with, you know  when to place stops, when to close your positions, what forex trading instruments or forex indicators to use for entering or exit, when not to trade and when to double your positions.

Forex Scams

Despite many brokers claims to the contrary, trading foreign exchange successfully is not an easy thing to do. FX trading is at best a risky business and at worst, a scammer’s dream come true. The Commodities Futures Trading Commission (CTFC) has seen a marked increase in the amount of foreign exchange scams over the last few years as forex trading has become more and more popular.
There are many companies claiming to have a foolproof way of making money with one system or another and while some of those systems have a basis in fact, even the most well-researched, well developed system cannot take into account the vagaries of the market place.The Division of Clearing and Intermediary Oversight (DCIO) recently released an additional advisory aimed at protecting consumers from this ever growing problem, but the CTFC has some basic, solid advice regarding becoming involved in Forex trading:

• No matter what you're told, Forex trading is risky.
• Don't be pressured into an immediate decision.
• Use common sense.
• Get everything in writing.
• Check with the CFTC.
• Seek advice from an accountant, lawyer or an independent 3rd party.
• Don't invest more than you can afford to lose.
• Don't mortgage your home or cash in your savings to trade Forex.

As a general rule, it is best to avoid any companies claiming that Forex trading is easy, guarantees results or encourages you to make small deposits and use high leverages. Regardless of how well educated you are, investing a small sum in FX trading is likely to end in losses. Some recent scammers who have been caught by the CTFC include:

• Lake Shore Asset Management
• Lake Dow and Ty Edwards
• Ben Ouyang
• Emerald Worldwide Holdings, Inc.
• Foreign Fund (First Bank)
• Equity Financial, Shasta, or Tech Traders
• IBS/IMC
• Kevin J. Steele
• Nawab Ali Khan Ali
• Sun Platinum
• Worldwide Commodity CorporationGraystone Browne Financial
• Sterling Trading Group, Inc.
• STG Global Trading or QIX, Inc.
• Universal FX, Inc.

There are case reports available from the CTFC website which are updated on a regular basis. In the meantime, if you have lost money in dealings with any of these companies or individuals, there is a contact page at CTFC.
One of the most disturbing recent trends is the amount of Forex sites claiming to be helping traders when in fact the opposite is true. Forexbastards.com claim they are there to help the trader distinguish the “good guys from the bastards.” Here is a video clip uploaded by Nick B, demonstrating how effective they are.

It is fair to say there is a LOT of disinformation being bandied around by the forex brokers. The CTFC website is perhaps the only guaranteed reliable source of information. Even the so-called anti-scammer’s sites appear to be just as populated with this type of information. Before beginning FX trading, remember these points:

1. It is NOT possible to make money starting with a small amount of capital.
2. Using high leverages is almost guaranteed to end in losses.
3. There is NO foolproof way of making money on the foreign exchange market.