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Decent Trading Platform and Software

In researching different platforms, it is always useful to trade the demo of that platform to gain experience about your trading system AND how it might work with your broker. Yet there is only so far you can go with your demo, and you have to realize that you can never gain a complete understanding of your system, or your broker, until you are trading real money in a real account.  
This article will thus go over possibilities and limitations of trading with demo accounts with different brokers:   
  1. You should narrow your FX broker search to those offering MT4 as a trading platform, because it is hugely popular for many reasons, with its popularity a foremost advantage. 
  2. Demos give you a chance to test drive numerous ideas and systems in a risk free environment,  and you should look for one that is good forever to continue learning indefinitely. 
  3. Limitation of demo: You can never learn about the emotional part of yourself or system unless real money is on the line. 
  4. Demos give you inside info into each broker's visible transaction costs (notably spread and swap) along with certain trading policies. 
  5. Limitation of demo: You can never totally know your broker's full transaction cost (particularly slippage) and dishonest trading practices unless trading with a real account.  

1. You should narrow your FX Broker search to those offering MT4

For the record, the most popular trading software which Forex traders all around the world use is called Metatrader 4 (MT4). This is for good reason. MT4 has become one of the most popular trading platforms for forex for the following reasons: 
  1. It is completely free (zero upfront fees or monthly subscriptions)
  2. It is a widely supported by many brokers (150+)
  3. It includes many useful analysis tools
  4. It has a worldwide community of traders
  5. It has a powerful MQL4 programing language
Similar packages for equities and futures can cost over $1000 and/or have $100+ monthly subscription fees, whereas MT4 is completely free. Literally hundreds of forex brokers around the world have adopted the software as the platform of choice for their clients because of its popularity. Clients who do not want to program can use any of the advanced analysis tools in the platform. Clients who do want to program, or take advantage of the programming skills of others, can enter a worldwide community of traders and programmers who have developed hundreds of free and commercial indicators and expert advisors. 

I am not saying that there may not be more sophisticated trading platforms out there. Perhaps one can argue that Tradestation, which has been around much longer than MT4, is a more advanced platform with an easier coding language. However, because the owners of tradestation had always demanded payment before access (either as a monthly subscription or as a brokerage client) its greed slowed its rate of popularity. MT4, in contrast, had always been free for the client, and easy to implement by different brokers, so consequently it grew exponentially in terms of popularity.

The popularity of MT4 has itself become its foremost advantage. Because of its popularity, there has spawned numerous MT4 related forex forums and websites for traders and coders to interact and share ideas and code. Sure, you can go grab a competing platform, and perhaps you don't have to pay a monthly fee if you are that platform's brokerage client, but your learning and coding opportunities will be severely limited because there are fewer traders/coders out there making it a better product. The gereral retail forex community has already found its home with MT4, and so one can find infinitely more resources related to it.

Here is a list of websites that track the brokers that use MT4: 
http://www.earnforex.com/mt4-forex-brokers/

2. Demos give you a chance to test drive numerous trading styles and systems in a risk free environment

Most MT4 brokers give you a demo account to test your ideas and systems, and this is great. Everyone should work there stuff out on a demo before going live. Lets face it, few of us have unlimited capital to risk on testing and comparing the thousands of trading ideas, indicators and automated strategies currently out there, but thankfully the demo account can allow us that freedom to test and learn and compare. With a demo you can backtest and forward test numerous ideas or systems without risk, and eventually you will learn how different systems stack up against each other, and what differentiates a good system from 90% that don't work.

Back testing and forward testing is essential to know how to work with the best system and trade correctly. If you trade without a back and forward tested strategy you will lose. You might start out lucky but the hubris of being initially lucky will lead to your downfall. If you are manually trading, you need to put in the 10,000 hours to develop the necessary skill level to be successful. If you are trading with EAs, you need to still put in tremendous amounts of time and energy in back testing and forward testing numerous possibilities, knowing beforehand that most will fail. Websites like this one will help with your learning curve as a trader or EA user, but you still need to gain experience on your own and that takes practice and time.

This process of developing yourself as a trader, and testing and comparing ideas and systems may take some time, and it is always a good thing to do this in good forever demo accounts. For some stupid reason the majority of brokers have demo accounts that expire after 30 days or so. They are probably hoping that the expiration pushes you to open a real account faster. Their motive is to profit from you, not to help you develop your trading skills. The simple fact is, 30 days is an extremely short duration to conduct your paper trading and completely insufficient for developing a sense of your trading or system competence.

Personally I like to trade on demo accounts for 6 months or more prior to committing real money. Even when I commit real money, I still continue to run the demo account to give me that longer historical record of my trading.

It used to be that there were only a handful of non-expiring MT4 demos, such as: Admiral Markets, Alpari UK, Tadawulfx, Fxopen, and Fxpro. Now there are more and more joining the ranks of non-expiring in response to greater client demand for such. If the broker does not publish on its website that the demo is non-expiring, it is best to call the broker support center and ask if it is. Sometimes you can ask the broker to make the demo non-expiring and they will do so only when asked. 

Note:
all non-expiring demo accounts will expire if they are not actively used in 30 days.

3. Limitation of demo: You can never learn about the psychoemotional part of yourself or system unless real money is on the line. 

It must be born in mind that traders have a very different psychological profiles depending whether they trade in demo or real platforms. When trading with a demo, traders are testing different ideas or systems in a risk free environment, which can be very useful; none of us have the unlimited money to test numerous and promising ideas and systems that may ultimately prove unprofitable. A demo gives a chance to indefinitely learn about ourselves as traders and back test and forward test the thousands of ideas and systems without risk.

That being said, at some point real money must be put on the line to learn about the emotional part of trading and how to deal with that beast. When trading in the demo account, you do not experience powerful psychological forces of greed, fear and ego sabotaging your trading. These emotions are your enemy. Greed forces us into the market too soon, and causes us to over-trade and over-leverage into oblivion. Fear can paralyze us into trading indecision, and cause us to cut short trades too early, never allowing them room to breathe or mature. Ego can make us think we know how to trade when we do not. 

When you are trading with real money you are luring your psychoemotional beast out in the open, so you can be aware of its existence and behavior.  Only when you become aware of how it can interfere with your trading can you seek to steel yourself against it. Hopefully you will have developed a solid trading plan and system inside a demo account, and once you take it to a real account, you will learn more about it and yourself, such as learning how to be patient, calculating, disciplined and free from emotions and ego that affect one's ability to trade. 

I advice you open an account with money you can afford to lose and start small. You will most likely lose most of the money you put in, and that is fine. It can be worth the risk to know the emotional side of trading. Only when you have built up the requisite knowledge, experience and confidence would I advise adding to the amount.

4. Demos give you inside info into each broker's visible transaction costs (notably spread and swap) along with certain trading policies. 

In terms of features and functionality, there is no difference between demo accounts and real accounts. The MT4 demo uses the same trading platform, which includes tools for building graphical models and trend lines, technical analysis indicators, advisors and experts, which are completely identical to the features of the real account. Most charting and trading activities in a demo account are carried out just like in a real account. 

In terms of spread, MT4 demo accounts will generally take the same prices form the live server and so reflect the same spread (Bid-Ask). You can apply a multi-pair spread indicator, such as Multi Pair Spread Monitor.mq4 and Display Info All Pairs.ex4 , to any chart to if you are comfortable with the spreads on the various pairs you want to trade. Check out my article on Razor Thin Transaction costs to see if your broker has competitive spreads. If the broker is an ECN broker, your spreads may be great until you figure out that you have to add the commission to the trade. Execute one trade and then go to the Account History tab of the Terminal window, right click and put a check mark on Commissions, and you should see the commission cost appear in the third column from the end. 

Note: Lower Spread on Demo = Red Flag It can be false advertising for a broker to offer demo accounts that have remarkably lower spreads than the standard real accounts. For instance, in 2010 Alpari UK demo accounts were switched over to their Alpari Pro ECN feed, which generally has a 1 pip or more lower spread than the Alpari classic account (classic EU avg spread: 1.8; ECN pro avg spread: 0.8). People like myself opening up Alpari UK demo accounts were lead to believe that they were Alpari classic demo accounts, only to discover months later (after funding and opening up a classic real account) that the classic real had a much higher spread. Now in 2012 Alpari UK had become more transparent about which demo corresponds to which real; when you go to create a demo account, you can now choose between Alpari Classic/Micro demo and Alpari Demo- Pro. However, be careful when you open and trade with an Alpari Demo-Pro account, for it is very deceiving. Alpari Demo-Pro has commission applied to any trades whereas Alpari Pro has a $5 RT commission applied (true avg spread = 0.8 + 0.5 = 1.3). Moreover, the Alpari Demo-Pro gives you the misleading impression that you can open up with any account size and trade micro lots, when in reality you must open an Alpari Pro account with 20K and trade a minimum of 3.0 standard lots, making it the largest min account size and largest min lot size of any MT4 brokerage in the business. 

Besides looking at a broker's spread, the demo can detect what a broker will end up charging you for swap rate. If you are thinking about holding your position overnight, it is a very good idea to compare the overnight interest rates of different brokers because they may vary significantly. You should apply a swap tracking indicator to your broker's demo platform and see if you are comfortable with the swap rates they offer. 

Because many MT4 demos mirror the prices of a real server, it can also tell you how your EA will work out that broker's particular price feed. It is commonly understood that the only difference between one broker demo and another is differing spread and swap rates while the data feed of any pair should more or less the same. The common understanding is that OHLC can differ only in respect to the time in which a broker closes their daily charts, which in turn affects the H4 charts but not much else. Yet the fact remains, and it has been witnessed by many, that the OHLC data can very significantly (from 5-35 pips) between brokers, even when data feed of each is adjusted to account for the difference in closing time. 

Why the difference in data feeds? I can only speculate here, providing four possible reasons can be added together: 1) liquidity provider feed variance; 2) broker price modification variance; 3) Broker spread widening variance; and 4) execution technology variance. Every broker uses the rates provided by his liquidity provider, and each liquidity provider provides slightly different feeds. Plus brokers can modify the price feed to a certain degree, particularly if they are a market maker, and they can widen the spread on these feeds to varying degrees throughout the day. 

Since it is almost impossible to go behind the curtain of the broker, so to speak, and compare the differences in feeds between liquidity providers, or price manipulation /spread widening policy, or technology bridge, we are left to deduce better price feeds from others only on the basis of working with the demo or real account. Since price feed is duplicated to a large degree between demo and real, it is so much easier to open up demo accounts from multiple brokers and test your EA on the different broker demos. You may discover that your EA works consistently better with one broker feed than on another, and so may assume that whatever LP feed + price/spread mod + technology bridge they are working with, it works for your EA. If your EA is a scalper/news trader, you may still need to trade that robot in a live account to see if the execution speed is sufficiently fast enough for it to survive (as we shall see).
 
Lastly, it is nice to know how your demo broker handles trade gaps. Because forex is a 24 hr market there is not as many trade gaps as the stock markets, but they do occur sometimes, particularly when a large impact news announcement had been delivered over the weekend, and the prices open on Sunday afternoon 100+ pips higher or lower than Friday close. If you were short EU from Friday with a 50 pip stop, and the market had jumped 100 pips higher on Sunday open, there are two ways that brokers might execute your stop: the minority will honor your stop and get you out at your 50 pips stop loss, and the majority will execute you at the open, regardless of your stop loss, costing you an additional 50 pips slippage. Often you will have no clue how the broker will honor your stop loss until it happens, though you get a sense how it will play out by watching your demo (the stop loss policy regarding trade gaps should be duplicated on the demo and the real account). I prefer brokers that honor my stops, and if instead I am trading with a broker whom I know will not honor my stop on a trade gap, I might think twice about carrying the trade over the weekend. 

Note: if you notice on a trade gap that the broker gives you zero slippage on your demo yet 5+ pips slippage on your real, it is a red flag for me that demo price feed is not matching the real.

5. Limitation of demo: You can never totally know your broker's full transaction cost (particularly slippage) and dishonest trading practices unless trading with a real 

The fact is MT4 demo servers take prices from the live server and the majority auto execute that price when clicked. With auto-execution of prices, what you see is what you get, there is no delay and no requotes. It is the ideal world of instant and seamless trade execution. With such lightning-fast execution speed, scalping EAs will get the best possible entry and exit and so perform much better than real accounts. 
 
Ultimately, in most demos you will get the following with respect to trade execution: 
  1. Instant and seamless trade execution
  2. No Re-quote
  3. No Slippage
  4. No Please wait message
  5. Trading software does not freeze at news release time
  6. No disconnection or server error
The live servers of different brokers, in contrast, will vary widely in how fast they can fill your order, depending on supply/demand factors, ISP-to-broker distance latency, execution software and speed, and use of the virtual dealer plugin.

Moreover, when there is 1-3 second delay between when you click your order and when it is executed, and the market has changed in price, different brokers give you different degrees of slippage. Ideally, you want an reliable and honest broker who executes fast enough with minimal and fair slippage. Fair slippage is being able to receive positive and negative in equal degree, without manipulation; in the time between when the client places a trade and the time it is accepted by the dealer/plugin, prices can change for better or worse, and client should be able to receive the better price (positive slippage) when markets move in his favor with the same likelihood of receiving the worst price (negative slippage) when markets move against him. Instead, too often the dishonest broker rigs up things so that the better price is rejected or the client is executed at the requested price, and the broker gets to steal the better price (steal the positive slippage). If the price moves against the client, he is requoted at the worst price, incurring only negative slippage. If the broker is market maker, and thus profits when the client loses, he might not mind giving the client even more negative slippage than the real market would have delivered. All brokers, irregardless of execution type, can artificially delay the execution time via the virtual dealer plugin (using the delay dial filter), which would create greater slippages, the positive side of which they can steal and the negative side of which they can pass on to you (which would also be profit for the MM-Broker taking the other side of your trade).

Execution speed and slippage are thus invisible transaction costs, only seen in a real account, and I encourage you to read more about its misuse in the forex industry in my article entitled Finding a Reliably Fast and Honest Broker.

Summary

Because none of us are rich, and we all have plenty to learn about trading, the demo account is the only way for us to lean as much as we can about trading correctly or choosing the correct systems to trade without risking our life savings. You should choose good forever demo MT4 accounts and use them for extensive back testing and forward testing. You will probably even acquire a decent sense of some of the broker's more visible price handling and transaction costs such as spread and swap rate using its demo server. 

But never be lulled into complacency or overconfidence with the demo. It is good for what it does but it has its limitations. There are invisible sides to trading that we can only see first hand using a real account. 

You will only see your emotional beast (with its greed, fear and ego) mucking up your trades when real money is at stake. You eventually have to learn how to confront it and tackle it with discipline and a trading plan.

You will only see the invisible transaction cost of execution speed and slippage malpractice when you open up with a real account with the broker. The demo auto-executes at the price you see, whereas the real can be subject to varying degrees of delay and varying degrees of slippage manipulation, both of which vary from broker to broker. 

Often you really don't know the true difference between demo and live until you have tested with a live account. This is particularly true if you are dealing with a scalping robot that opens and closes trades in less than 1 minute on tick data. Getting your scalping EA to perform well on a forward test on a demo account can be promising, because it shows that the broker's particular spread and price feed work with your EA. The next step is to open up a micro account and test the same EA on the lowest lot size possible to see if the results between the live and demo match up - particularly in terms of execution speed. If there is a wide deviation in results between the demo and live in one month of testing, then it can mean two possibilities: 1) you should be on the search for a broker with a faster execution speed (faster routing technology with less intentional delay); or 2) your scalping EA will never find a better match because it relies too heavily on a instant and seemless trade execution that does not exist with real accounts with legitimate execution delays.

Outside of opening and risking real money to test execution speed, you can snoop around the internet and forums and get a decent enough sense of what clients are saying about how much a broker has engaged in unethical platform manipulation behavior. Clients will complain loudly on forums about many broker manipulation tactics (such as spread widening, gap slippage, delay slippage, platform freezing, stop hunting etc), and though some might be shifting the blame of losses from themselves on to the brokers, when you see the complaints pile up on the broker, you might want to pay heed. Pay attention to the dates of the complaints as well, for with increasing broker competition, it is quite possible that older brokers will be doing less manipulating today than yesterday in attempts to clean their image. 

A "right" broker should be one that works well with your particular strategy or EA in either demo or live account, having decent and consistent average spread and pricing, and fast enough order execution in a live environment. When you conduct a full analysis of your trading in a real account, and you suspect that there has been frequent and unnecessary execution delays and negative slippage, you should follow your intuition and look for a better broker. Ultimately, you want the playing field to be as fair as possible, meaning your price feed should stream through accurately and consistently enough, and your spread AND slippage should be as low as possible.  

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