The Importance of Starting with a Forex Demo Account. Open a Demo Account at One of Best Forex Brokers.

Investors who will trade in Forex can generally make wrong transactions because they do not have a good command of this market. The reasons for this are that losses may occur as a result of improper use of factors such as leverage ratio in the forex market, swap and commission fees, spread, collateral fee received during the transaction, and free collateral fee.

What do these tools mean? Why should we start with a demo account?

What is Leverage Ratio in Forex?

Leverage ratios allow investors to trade with a higher volume than their balance. Although this process seems useful if used correctly, it causes losses if used unconsciously. While institutions trading in the domestic market use leverage of 1:10 as required by law, in global markets it increases to rates such as 1:50, 1:100, 1:500, 1:1000. It is very important to determine a correct strategy according to the leverage ratio used. Therefore, starting with a demo balance allows the investor to gain knowledge and experience on this subject. To give an example of the leverage system:1/10 Leverage ratio: Allows the investor to use his 100 unit investment as 1000 units. This rate allows you to open transactions up to 10 times your investment. In other words, the investor trades between 10 USD and 100 USD. Therefore, while it is possible to obtain high profits from the investment made, the loss rate that will occur as a result of the decrease in price may also be high.

What is Swap Fee?

Swap transaction shows the interest rate paid by two parties within a certain period of time. Here is the interest rate received when the investor does not close the investment he made during the day on the same day. In this transaction, the institution receives interest from the investor for not closing that transaction to the next day. There is no exchange rate risk in these transactions, but there is interest risk. Swap fees are not charged at the same rate in every institution; this rate is at the discretion of the institution. To give an example of the swap fee:When the transaction opened on Monday is closed on Tuesday, 1-day interest is charged, whereas if the transaction opened on Thursday is not closed, a 3-day swap fee is charged because the weekend will be in between.

What is Commission Fee?

Commission is a fee charged on each transaction. The profit of the institutions is the difference in the spread between buying and selling. Forex commissions can affect your total trading costs, so it’s important to carefully review your broker’s commission structure and other fees before trading. Transactions are charged per lot or per transaction, depending on the institution. For example, when you open 1 lot of gold transaction, a total of 2 units of commission fee is charged.

What is the Spread Fee?

Spread refers to the difference between the buying and selling prices of products in financial markets. Spread is the financial difference an investor faces when he wants to buy or sell a financial product. In other words, it shows the difference between the buying and selling price.How is the spread calculated?
Spread = Selling Price – Buying Price

Calculating the Collateral Amount Received

Since a leveraged transaction is used in the investment, the investor is asked to show this collateral as security and when the transaction is opened, this collateral fee is deducted from the balance. This collateral cannot be used as long as the transaction is open. Therefore, the investor should calculate the transactions he receives accordingly.
When the transaction is closed, the blocked collateral amount is reflected back in the balance. Therefore, the investor should calculate the transactions he receives accordingly. To give an example of this process: For example, when the investor trades 0.5 lots, the transaction becomes 50,000 contracts.

What is the Free Coverage Fee?

Free collateral fee is the usable money other than the collateral fee received due to open transactions. You will be warned by the system when the free collateral percentage falls below 100%. You may need to add to your balance to recover from this situation.

In short, when you log in to the forex market with a demo account, it allows you to experience all these conditions at no cost.