Competition between forex brokers is blessed, like almost any sort of competition. When brokers offer demo trading competitions in order to obtain demo users, who exactly are they helping here?
Lets see, generally speaking the winner of a contest is determined by who has the most profit when the competition ends. That sounds fine except that they are using demo funds where there is ZERO skin in the game and thus ZERO incentive for any kind of risk management whatsoever. So whoever does win this probably just learned to be as aggressive as possible and now has an ego pretty much the size of Mt Everest in their arsenal just in time to start trading their live account. Do you think they are set up for trading success?
Guest post by Matthew Carstens. Founder of Rogue Red, Creator of tradingwheels
It gets better…
This is where most people believe the cash incentive for winning is still worth it but they didn’t read the fine print. Most brokers don’t actually send the winning funds to the trader, rather the funds are deposited into a live account where (most likely) the winner has to trade 20, 40, 100, 500, etc round turns to even qualify in receiving the money that they won for winning the contest in the first place.
So lets recap, the traders all sign up and provide contact information for the broker, trade like their hair’s on fire trying to win totally neglecting basically any trading education they ever received, and then if they win, they have to trade again to get the money that they already won from the contest. Ahh, correct – if there is any money left and that is only for the winner. Lets not forget that the contest losers had to give up their contact information in exchange for learning to trade with reckless abandonment.
Let’s not forget that usually that same brokerage firm will promote that winning trader and give them an interview or at least use them as an example of how great trading is so others can follow their “winning” methodology. Sorry, but I’ll pass.
Listen, I actually don’t have a problem with the brokers that offer these as they are just being savvy marketers who understand what profitable traders already know – a great reward to risk ratio when they see it – as those brokers have almost no risk in offering these contests with a ton to gain in leads, promotion, and live accounts.
Hopefully an alternative to these will pop up that can provide you with more value in the future, or I have at least made you think twice on whether or not it is a good idea to risk blowing up your demo account in these demo contests again.
Editors note: Republished with permission. The original article is here