You have probably been trading on a demo forex account for some time already and it is possible that you have gained confidence - traded different styles, tried different strategies and found a winning one! Earning "profit" of how much - 5 or 20 per cent every week, maybe even every day?
Be careful. Demo trading in Forex is something which is very useful, I should say it is a must for every beginner but it has to be used only for the purposes it is meant to - and that is to evaluate a certain strategy, to put your psychological strength to the test and possibly adjust your trading style. But there is a significant difference between demo trading and live trading, and it is that while testing yourself on the demo version, the "enemy" is not on the battlefield, or in other words - the broker does not care about you!
Live trading has proved to be very different from demo trading - this is something you must have learned by now. This is caused by your broker's behaviour and is absolutely understandable - but is there a way to overcome this discrepancy?
Before answering this question we must first analyze where the discrepancies come from.
One thing is spread - it is sometimes lower in the demo platforms of the brokers and when you start trading live you are being hit with much higher spread on different currency pairs. One of the world's largest forex broker does that, bur of course you will not find it on their webpage!
But the major reason for the lack of consistency between the demo and live performance lies in what is called by different names - "server latency", "delayed order execution" or I would rather call it "hidden spread".
Let me give some more information on this. You see, regardless of whether you trade manually or use some kind of automated software, what happens is always one and the same - your order send command or order close command are sent from your client's terminal to the broker's server. There is no way for you to know what the real delay was between these two. So, once the forex broker's server receives your command, it is processed by a counterpart of your platform which serves only one purpose, and that is to increase the broker's profit! How do they do it? There are multiple strategies that forex brokers implement, but one is the "hidden spread". After all, it is your money that you trade and you only pay the broker a price for every deal you open which is the so-called "spread", or the difference between the Ask and Bid prices.
In the recent years virtually all forex brokers dramatically decreased their spreads thus reacting to the growing competition. But are they playing fair?
No, they are not. And you would better find something else to do if you believed they did.
Every time the forex broker's server receives your command to open or close a position, they "put it on hold". The command is simply not being executed immediately and the broker's software is simply waiting for a short (and sometimes not so short) while just waiting for a better price. Which of course is worse for you. Between your order is sent and finally executed by the broker there may have been a price change of several pips. And that is not in your favour. Well - in order to calculate the real spread, we need to add these several pips to the officially declared spread and we will find ourselves in a situation where we trade with spread levels of 4, 5, 6 and sometimes even more on the EUR/USD currency pair!
What shall we do then? Summon up all traders from all over the world and insist on setting up an international regulation body to oversee the forex brokers? Come on... Do not make me laugh!
Forex brokers do not like "scalpers". Spread levels are a real killer for the "scalpers". So, either forget about scalping and trade on the higher time frames where a couple of pips would not mean much, or change your strategy!
What do I mean by change of strategy? Simple. The above effect may have two sides for the forex broker. If they wait for a short while until the price is better for them and worse for you, this may end up so that they trick themselves and have to accept a price which is better for you!
So, instead of implementing a strategy when you sell when the price is falling and buy when the price is rising, try one where you sell when the price is still climbing and buy when the price is still dropping! This way even if the broker delays the execution of your order, the chances are that in most of the cases it will have a positive effect on your trade, and not negative.
Do not forget that you need to apply this principle to the close of your trades as well - close the short positions when the price is still dropping and close the long positions when the price is still rising.
I hope this advice was useful, and happy trading to all!


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