As a beginning trader, you will probably start your trading career by opening a Forex demo account. Your first few trades may be only paper trades or simulated Forex trading. By using simulated trading, you will learn how Forex trading works and how to use some of the trading tools. You will be ready to move on with live trading after you have understood the basics.
Simulated Forex trading is a learning precursor to Forex futures trading. Forex simulated trading invariably provides a simulation of all the features of live trading systems such as order-cancels-order (OCO), limit and stop loss orders, use of leverage (margin), option trading, and full use of indicator tools allowing investors to test virtually any Forex future trading strategy without risk.
What Is Forex Futures Trading?
Forex futures trading are exchange-traded contracts to buy or sell a specified amount of a given currency at a predetermined price on a set date in the future. All future Forex trading contracts are written with a specific termination date, at which point delivery of the currency must occur unless an offsetting trade is made on the initial position.
Trading Forex futures serve two primary purposes as financial instruments. First, futures Forex trading can be used by companies to remove the exchange-rate risk inherent in cross border transactions. Second, Forex future can be used by investors to speculate and profit from currency exchange-rate fluctuations.
In Forex futures trading buyers and sellers are primarily entering into futures contracts to hedge risk or speculate rather than to physically exchange currencies. The consensus in the Forex investment world is that the futures market is a major financial hub, providing an outlet for intense competition among buyers and sellers and, more importantly, providing a center to manage price risks. The futures market is extremely liquid, risky and complex by nature, but it can be easily understood as well with studious dedication. While trading on the Forex spot market is not for the risk averse, Forex futures trading is more regulated, and therefore less risky than Forex exchange spot market trading. While the Forex market has about $4 trillion in assets traded each year, the currency or Forex futures market has about $100 billion in assets traded each year. Therefore, the Forex spot market is more liquid, which provides better entry and exit trade prices.
The Limits of Simulated Forex Trading
There is no doubt that simulators are good tools, but there’s just no way to fully replicate real trading with actual money at risk. All people will trade differently when actual money is at risk as their emotions enter into the trading decisions. Also, even the best simulators offer fewer currencies and more restricted trading parameters than live trading through the global Forex futures trading markets.
For example, a simulator may not provide the ability to trade foreign currencies under a certain price. There is often a time delay in the data feeds of simulators, and this means that your trades won’t be executed immediately, but after the time delay. By contrast, most real market Forex future trades are immediate.
In addition, playing the markets online just isn’t the same as putting your own money on the line. Simulated trading can be used to test strategies without losing real money. It is much easier to invest $10,000 in simulator money in a high-risk currency than to invest in that same currency with your hard-earned cash.
For example, suppose your decision to buy a currency is wrong. In a simulator, you can simply reflect on the trade with no monetary loss, while a poor decision in a real money futures Forex trading could put your finances into a tailspin.