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 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 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 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 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 books and done some tertiary market research. 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 robot trade with the real thing and nothing less.
Retired Canadian Economist. My main activity since Winter 2006 is trading Forex. I've been trading currencies online with the help of EA's and I currently manage trading accounts at two Forex brokers in the US and in UK respectively
(The best source for EAs is http://www.forex-robots.com )
Article Source: http://EzineArticles.com/?expert=Brenda_Maison
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