What are the main things to know about forex broker demos and live contests? Read on to discover how such competitions work and why they’ve become popular in forex.
Some say trading is like a sport, and like any sport, there are tournaments. A version of a tournament in the forex world is the demo and live contests, events held by several brokers offering attractive prizes to clients capable of producing the most significant gains.
For these reasons, trading competitions have become increasingly popular, further fueled by the number of new participants coming into the industry every year.
So, what are demo and live contests, how do they work, and what are the main benefits and disadvantages for anyone thinking of participating? Let’s find out.
What are forex demos and live contests?
A forex contest is a trading competition held by forex brokers for both demo and live account holders. These challenges may occur over a month or a few months, with real prizes being awarded, such as withdrawable cash, funded accounts, and a myriad of electrical products.
Like any business, brokers employ several marketing strategies, with contests being one of the most effective. Brokers understand some of the benefits of these competitions in an attempt to increase their client base.
Due to the attractive financial incentives, a trader entering any of these is likely to spread the word to other traders who would eventually express interest in joining. In the end, the broker hopes a sufficient number of the participants become long-term live trading clients.
Even during the competitions themselves, brokers still gain from spreads, commissions, and swaps churned by the trading volume of the contestants. From a trader’s perspective, aside from the potential of winning a prize, this environment can allow them to showcase their trading skill to a broader audience and give them bragging rights.
How are a typical demo and live contest structured?
Of course, the critical difference between the two is that a demo contest involves no real money and is often for a shorter period, while the live version does apply actual funds and can last for several months.
Moreover, due to having no monetary risk, demo contests may occur several times a year while the latter less frequently. Let’s look at how each is essentially structured.
A demo challenge involves a specified trading period whereby a client, whether new or existing, must create a new demo account with a broker. Traders are generally advised to join right at the start to give themselves more time for maximum gains.
Assuming they’ve met the requirements for signing up, the broker allocates the demo account with a set starting balance configured with the settings in line with the rules.
For instance, the account may have an un-adjustable maximum leverage ratio. It may also automatically close positions before a set server time at the end of the contest. Customers might be required to execute a set number of deals before being considered amongst the top contestants, along with other important terms and conditions for trading.
A regularly updated tracking system including a leaderboard would show the positions of other participants and their current percentage gains and losses on the broker’s website for public viewing.
Once all is said and done, the broker will announce the winner and top 3 or 5 positions along with their respective rewards.
A live contest will have a registration period at least a month in advance, so more traders know about it and prepare for the event. In many cases, these competitions can run anywhere from 30 days to three months or even longer. In addition, prizes with a live challenge are significantly greater.
Like demo contests, new or existing clients of a broker need to register with an additional or new account. The key distinction is traders must make the minimum deposit for the competition. Some brokers permit clients to open more than one account, provided they meet the required funding amount.
A broker would stipulate some essential Ts and Cs regarding execution to ensure traders are following the rules. A leaderboard system updated hourly or every few hours will also exist on the broker’s website for everyone to view the participants’ performance.
Once the competition ends on a particular day at a specific server time, whichever trader’s gain is the highest wins the contest; other prizes are allocated to the lower places accordingly.
Pros and cons of demo contests
The first clear advantage with a demo contest is no real money is involved. In contrast, this limitation means traders cannot monetarily gain from their performance during the event and only have a small chance of being rewarded from the actual contest.
The cash prizes are still sizable, ranging anywhere from a few hundred up to a few thousand dollars. Traders can also use such events to test different strategies and money management techniques that might be unsafe without any monetary risk involved.
Anyone who generally thrives in a competitive environment may enjoy maximizing their performance against many other traders worldwide. Perhaps the biggest drawback with demo contests is they tend to attract high-risk trading, which wouldn’t be advisable in a live setting.
It’s often no surprise to see those in the top 3 gaining anywhere from 5 000% to 10 000% or more within a month. Demo contests have built up a reputation where traders take far bigger risks than usual due to their competitive nature.
We don’t see astronomical gains in the live version because, of course, real money is on the line. However, this is something worth noting for anyone considering a demo contest.
Pros and cons of live contests
Live contests have more tremendous winnings for the top earners and reasonable consolation prizes for runner-ups and others. The main reward can start from $1 000 to $10 000 or sometimes a lot higher. Even if one doesn’t make it in the top 10, unlike the demo, they still should have gained from their normal live trading.
Some live competitions receive media coverage, which can be an avenue for the top earners to showcase their skills towards potential investors interested in investing in them. As with demo events, live contests have a thrill factor for those who like the competitive spirit.
On the downside, the main downside is real money is at risk. Although the gains on live challenges are more conservative than demo challenges, some traders might still trade in a riskier way than usual to augment their profits, increasing the risk of ruin.
When used responsibly, demo and live contests can provide great financial and product incentives for experienced traders in the industry and are a platform for them to showcase their skills to more people.
These attributes are why we see many competitions being marketed by some of the world’s largest forex brokers. However, the most important aspect for any trader thinking of joining these events is understanding some of the dangers, considering that the motivative nature often requires higher risk than normal.