Forex Demo and Live Trading Competitions, Should You Enter Them?

by FX EA Review
Forex Demo and Live Trading Competitions, Should You Enter Them?

It’s competition time! Since the beginning of existence, humankind has naturally been competitive. When done fairly, competition pushes people to unimagined heights and improves their game. 

Moreover, any contest should have a prize in the end as an incentive for contestants. What has just been described sounds like something of a sport, but forex trading also has several competitions with real financial rewards. 

If you can produce the highest gains over a particular period, you might fancy pitting yourself against some of the best in the world. Forex demo and live competitions are popular components with most brokers used to attract clients.

Furthermore, they offer some large monetary prizes and other attractive rewards. You may wonder whether entering these contests is worthwhile or not; do they do more harm than good? Let’s explore.

What is a trading competition in forex?

A trading competition is a broker-held contest amongst traders to see who can produce the highest percentage gain within a certain period. There are two kinds of competitions, demo and live (no entry fee is involved with either).

A demo contest offers withdrawable cash and tangible prizes, except that the money traded is virtual or on a demo account. Conversely, the live competition involves clients using real money, though the rewards tend to be more substantial because of the risks.

Aside from live-funded accounts and actual cash, the other winnings may include technological and lifestyle products. The challenges last anywhere from a few weeks to a few months. 

Brokers utilize a myriad of marketing strategies to attract new traders to use their services. As expected, contests are effective in achieving this objective because of the financial incentives involved. 

From a broker’s perspective, competitions allow for powerful word-of-mouth. If one trader hears about a particular contest, they are likely to distribute the word to their friends and colleagues, who are likely to indicate a desire to join. 

It ultimately becomes a volume game as the more customers sign up, the higher the brokerage’s spreads or commissions. Aside from the prizes, traders can use competitions to weigh their skills against others globally and earn bragging rights. 

The typical structure of forex trading competitions

Minimal differences between demo and live competitions, aside from the money involved. Yet, we’ll outline the processes of each to distinguish them.

Demo competitions

Both existing and new clients can partake in this contest by opening a new demo account with the broker in question. There would be a registration period to prepare traders and allow enough to get on board. 

Demo competitions are usually shorter (generally not longer than a month) and run more regularly. Once clients have met a few of the requirements during the sign-up process, they are set to go. 

The broker allocates the account with a starting balance of their choosing, along with other pre-configured settings like maximum leverage, lot sizes, etc. A leaderboard will be present to track the real-time performance of all participants, updated as regularly as possible.

Once the trading period has ended at a specific server time, the accounts are automatically deleted. The broker would then announce the best 3, 5, or 10 participants, along with their respective prizes, which may be withdrawable cash or a funded account with them.

Live competitions

Live contests function similarly to their demo counterparts. Clients, whether new or existing, need to open a new live account. Likewise, there is a registration period typically up to a month in advance to allow enough traders to sign up and ensure everyone starts on the same footing.

In terms of running time, live challenges can run a little longer, anywhere from 30 days to a few months, and such contests occur less frequently. As expected, brokers allow more leeway in case of any unexpected drawdowns because of the actual monetary risk involved. 

Furthermore, the prizes are grander, ranging from huge cash prizes, funded accounts to exquisite gadgets and holidays to international destinations. Traders will need to deposit a minimum amount into their account according to the competition rules. 

With some brokerages, you can open multiple accounts if you can fund the minimum on each. Like with demo contests, a leaderboard is updated every few hours so anyone can view the contestants’ real-time performance in the rankings. 

Once the competition ends, the live accounts may or may not keep running. The broker would subsequently announce the winners and runner-ups publicly, along with their respective prizes.

Final word: why most shouldn’t enter trading competitions

Like any competition, trading contests can improve one’s skills, help them utilize different strategies/techniques, compare their mastery of the markets against other traders, and provide some handsome financial incentives. 

Additionally, winning a competition or placing high in the rankings can provide a boost to your ‘trading resume’ when approaching potential investors or enthusiasts for any other trading-related endeavors.

Unfortunately, the biggest problem with virtually all competitions is they encourage abnormally high risky behavior traders wouldn’t usually practice, and therein lies the problem. 

To achieve monthly returns in the thousands of percent requires a ‘go big or go home’ mentality. Trading contests were designed to see who could produce the greatest return within a set time and not the most significant gain relative to risk. 

Hence, the only way a trader could win or rank highly is by risking 10% or higher of their account on every position. This behavior is unsustainable even for the most experienced traders and not an accurate representation of consistently successful and profitable traders. 

Even though demo contests have no tangible financial danger, it’s easy to fall prey to some bad habits in a live setting. Traders who may be suitable for these competitions are day traders and scalpers rather than those with a more long-term outlook on their trading performance using optimal risk management.

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