By Yael Warman

It is often said that you learn from your mistakes, but do you have to lose money to learn?

As children we all had to learn things that can only be learnt through trial and error. Walking, running and riding a bike, are all cases of triumph over many failures. In many ways trading Forex for a beginner is similar to that process of learning to ride a bike. It is a truism that you will fall down. But the character and mettle of a trader is forged by how they get back up.

Like riding a bike, losing money in trading can be painful. You might graze your arms, bump your head, and scrape your knee. But in Forex, there is another way. A helmet to protect your head. Elbow and knee pads to protect your knees and elbows. In Forex this is called a demo account. A demo account is a trading account in which you can use pretend money to trade. It follows all the same conditions as a normal trading account but you can’t lose any real money. It’s riding a bike with training wheels.

As a beginner, a demo account is critical. Some spend years honing their skills on the demo account. But it needs to be used properly and treated like real money. Otherwise it will represent the same problem with using training wheels: that is doesn’t teach you the critical skill- balance.

Another really useful option for a beginner is the ability to copy the trades of a more experienced trader. Whatever the name given, whether it be money managers, copy trading or social trading, the premise is the same. You can access a trader who can either undertake the trading on your behalf, or allow you to manually or automatically copy the trades that the experienced trader makes. To continue the bike analogy, it’s like hitching your bike to another bike and being dragged along until you are ready to ride independently. Again, it has its advantages and disadvantages. The advantage is clear, you are functionally having an expert trade on your account, for usually minimal if any fee. But it is a passive experience. You are unlikely to be learning the fundamental skills needed to trade on your own, because often there is no teaching from the expert. It’s like watching hours of Olympic gymnastics footage and then trying to do the splits and vaults at home yourself. Ouch, we don’t recommend it.

So, back to the crux of the question – do you have to lose money to learn? Despite what we have said, the answer is actually no. In spite of the shortcomings of demo and social trading, they are effective tools for ensuring that you begin your trading career profitably. But, to do so, you need one critical ingredient as a starting point and that is a solid education.  To be a trader, you need to have a strategy that works and to find one you need to learn about trading. You need to learn how to trade and knowledge on the market, so that you are able to make informed decisions on how you are going to trade.

Now at this stage the demo account becomes critical. The demo is where you adapt and perfect your strategy until you reach the point where you know it is profitable.

With all these factors in place, trading with real money is simply about executing the plan. But be warned. Executing the plan is not at all simple. The real difference between demo experience and real experience is not about your strategy, it is about your psychology. Trading with real money is a new ball game where fear and greed are now the challenges that you must master. It is in this arena where real experience is gained, in the slow process of training yourself to trade to your plan without being swayed by emotion. Only real experience at the coalface of trading with your money will allow you to develop that skill. Once mastered and with the right strategy, it is the skill that will set you up financially for life.

It’s time to get on your bike.

About the Author:

Yael Warman is a creative writer with a strong background in marketing and advertising. Yael has been a writer for over 10 years and has worked for clients in various industries as well as her own companies and is currently the Content Manager at Leverate.