Forex Robot Demo Accounts Can Be Misleading

Why Running A Forex Robot In A Demo Account Can Be Misleading

In previous articles, we have briefly discussed the advantages of auditioning a forex robot in a live trading account over a demo or simulated account or relying on backtested results. Our feeling that traders can get the best sense of a how a forex robot is going to perform through a live account rather than in a simulated environment is not meant to be a slight on demo trading. A demo account is definitely an advisable option for a new trader to hone his skills and discover areas of his trading that need some fine-tuning. We’re certainly fans of the fact that most reputable forex brokers offer free demo accounts and that traders can participate in this trading arena without risking real capital.

That said, our experience has been that those egregious claims that you’ve probably seen on the sales pages of a lot of forex robots come from trades that are either taken in demo accounts or in backtests. The unfortunate aspect of this that you, the user of the forex robot, doesn’t get a true sense for how that forex robot is going to perform when it is trading in a live account. In backtesting, the forex robot has the benefit of hindsight. The programmers can tinker with the robot’s settings until they find a strategy that works. This isn’t all that hard to accomplish when you already know how the market performed.

Likewise, in demo accounts, a forex robot may trade more frequently or take more dollar risk than you would want it to take with live capital. This can boost the forex robot’s performance results, but then you’ll be in for an unpleasant surprise when you turn that forex robot loose in your live account.

Other Pitfalls Of Demo Forex Trading

Most brokerage firms that offer demo accounts give you a large amount of “play money.” FXCM usually gives traders access to $50,000 in faux cash and there are some other brokers that give you as much as $100,000. That’s all well and fine, but how many traders are going to open their first forex account with $50,000-$100,000? Not many.
That may seem like it’s not a relevant point, but trust us, it is. If you run a forex robot in a demo account with $50,000 while knowing that you’re only going to put $5,000 into your live account the forex robot is going to produce different results. This is just one more reason why we advocate using forex robots solely in live accounts.
Perhaps the best way of viewing demo accounts is as a learning environment. A demo account is the next step for a novice trader that has perhaps read a couple of forex trading books and done some tertiary market research. A forex robot is a few more steps beyond a demo account and the two should not be mixed. In order to keep the unpleasant surprises to a minimum, let your forex robot trade with the real thing and nothing less.