What is a Forex Simulator Software and how does it work?

There are traders that work hard, analyze markets, create trading strategies, test these strategies and use the ones that work the best. There are also traders that trade without any preparation.

The difference between the two is that the ones that work hard, have more chances of success than those who don’t. We all start trading as we think it’s an easy way to make a lot of money, however, soon we realize that trading profitably and consistently requires preparation.

What is a Forex software simulator

Forex simulators are software programs that can be run on trading platforms or separately and they let traders connect to the simulated Forex markets. Simulators use historical chart data to create a live trading environment and give traders better tools for backtesting.

There are various simulation softwares available on the market. Some of the programs are free while others cost money.

Forex simulator trading vs Demo trading

Even though demo trading and simulation trading have a lot in common, they’re not the same and we’ll discuss each in more detail.

Demo trading

Demo trading enables traders to use virtual funds to trade in a live-like environment. Everything is similar, except the funds on your balance are fake. Demo trading makes Testing your strategies possible. But they are not created for backtesting. Backtesting is done using trading simulators, and we’ll expand that topic below.

Before the appearance of forex market simulators, traders were using Demo accounts for backtesting. Backtesting simply means that traders are comparing their strategies to historic data to get clues how their strategies perform. On the other hand, testing is always using current charts to measure the performance of trading strategies.

Demo trading has its advantages and disadvantages. The main advantage compared to using a Forex simulator is that you can track economic and political events better. The main disadvantage is that it takes more time.

Using a Forex simulator

Forex backtesting simulators can be installed on your trading softwares or separately. There are various types of simulators. Some of them are free and others are for sale. Simulators enable traders to open trading positions virtually on historic charts and see the outcome immediately.

The Key Benefits and drawbacks of using Trading Simulators

As with most things in this world, Forex market simulators have their pros and cons. Let’s take a look.

Benefits

• Demo trading takes a lot of time. Simulation programs let you train much faster, without taking any risks.
• You don’t need to wait for the certain market conditions and setups to appear.
• There’s no need to stare at your screens all day.
• You can backtest your strategies whenever you have free time, even during weekends when markets are closed.
• Using a forex simulator helps you control the time and lets you focus on what really matters and that’s your strategies.

Drawbacks

• It’s more difficult to track economic and political events when using historic technical data.
• Simulation software takes time out of occasion, which is highly beneficial when it comes to testing strategies. However, in live environments, time affects performance greatly. Traders tend to overtrade when trading setups do not show up and that can ruin account balance.

Why should we use Forex software simulator

Forex simulator software for beginners is highly beneficial as they are in the process of developing their trading strategies. Backtesting can help increase confidence in trading systems and trade without fear of failure.

Professional traders are using simulators as well. Market conditions often change. What has worked before, might stop working tomorrow. Backtesting helps create new strategies. In addition, every trading instrument has its own characteristics. Forex market simulators help create trading strategies for various instruments.

Modern simulations offer realistic trading experience, various simulation speeds, and step-by-step simulations. What’s more, there are multi chart options available. The result is a highly similar experience to actual trading. Multi chart option helps to conduct multi-timeframe analysis and backtest your strategies to see the performance in no time.

What to look for when selecting Forex simulated software

When selecting which is the best trading simulator and which one to use, there are a few things traders need to take into consideration before making a final decision. The first of them is if the simulator offers an economic calendar.

Technical traders are using charts to determine future prices. They avoid placing orders before significant economic announcements as market news can increase volatility and damage patterns. If you are a technical trader, a built-in economic calendar will be highly beneficial.

In addition, the software should have the ability to let you open multiple windows. What’s more, it’s important to provide multi time frame options and good visuals.

The best forex simulator software should include various order types and flexible layouts. It’s important for the software to be as user friendly as possible to let you focus on developing and backtesting strategies.

Forex Simulator Software on trading platforms

Now that we know what Forex simulator software is and how it works, let’s look at the trading platforms. As already mentioned, there are many simulation programs and some of them can be installed separately, while others can be installed on your trading platforms. MetaTrader 4 and MetaTrader 5 are among the most popular trading platforms in the market.

MetaTrader 4

MetaTrader 4 was developed in 2005. It’s true that the interface looks outdated for most, but the main benefit is that the platform is highly reliable. Hence, it is the most popular Forex platform today. As a result, there are many algorithms and trading programs created for MT4. Algorithms are used for trading automation and they are also referred to as Expert Advisors EAs.

Forex market simulator programs available for MetaTrader 4 can be installed on your platform as EAs. You can simply download them, and click run as EAs. When starting a new simulation, you can select the trading symbol that you are going to test, timeframe and date.

Choosing a date in your simulator is important as market conditions change overtime. If you are backtesting new strategies, it’s best to use current data for the tests. Your strategies should be relevant to recent market conditions.

MetaTrader 5

Similarly to MetaTrader 4, MetaTrader 5 can also be used as a platform to backtest your strategies. All you need to do is to find a forex market simulator on the internet and run it as an Expert Advisor.

The main difference between MT4 and MT5 is that the MT5 is 5 years younger and offers access to various asset classes, whereas, MT4 is mainly created for trading currency pairs.

Using MetaTrader 5 and simulator EAs you can backtest markets such as CFDs on stocks, Forex pairs, commodities, indices, crypto currencies, etc.

The main takeaways

To sum everything up, forex backtesting simulators are highly important in evaluating trading strategies. Demo accounts and trading simulations have a lot in common, however they are not the same. Demo accounts are used for testing strategies. Simulators are used for backtesting strategies. There are various forex market simulators available. Some of them can be installed separately and others can run using your trading platforms. In MetaTrader platforms simulation programs can be run as EAs. When you’re choosing a simulator, make sure that you’ll get a built in economic calendar, option to use multiple time frames and multiple charts. In addition, it’s important for the software to have a user friendly interface and various order types.

FAQs on Forex simulator software

How do you use soft FX simulator?

Soft FX simulator can be installed and run on your MetaTrader as an Expert Advisor algorithm. The software will enable you to backtest trading strategies in a certain period of time and on chosen instruments.

Is Forex simulator a good way to start trading?

Yes, a Forex simulator is a good way to start trading. Many novice traders place orders and are not sure in their trading strategies. Many do not even trade using strategies. Simulators are a great way to get experienced in trading in a short period of time and backtest trading strategies. Backtesting can be done whenever you have free time, even on weekends when trading is unavailable.