Thanks Eyefondue, you make several great points.
To expand on what you said regarding demo vs. live trading:
Investopedia defines liquidity as follows: The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.
For example, EUR/USD is the most liquid financial instrument in the world, but even for that most liquid currency pair, the liquidity will drop during news events. If your demo strategy is longer term and doesn't place trades during news events, then your results on a live account with the same trades would likely be comparable.
However, if your demo strategy relies on getting filled at the exact price you requested during news events, you may find that such a strategy will not perform as well in the real market. That's because no demo can replicate the liquidity or lack thereof during major news events. That means your real market orders could be more prone to slippage.
Slippage is when your order is filled at a different price than you requested. The good news with FXCM is that slippage can be positive as well as negative. Positive slippage is when your order gets filled at a better price than you requested. Below are the stats from over 127 million live trades executed through FXCM between January 1, 2015 and March 31, 2016:
- 78.71% of all orders had no slippage.
- 12.77% of all orders received positive slippage.
- 8.52% of all orders received negative slippage.
- 50.2% of all limit and limit entry orders received positive slippage.
- 39.9% of all stop and stop entry orders received negative slippage.
Note that positive slippage is more likely to occur with limit (take profit) orders, while negative slippage is more likely to occur with stop orders. That's due to the momentum of price movement when those particular order types are triggered.
It's also worth noting that for market orders, Trading Station has a feature called Market Range (and a similar feature for pending orders called Range Entry) that allows you to specify how much negative slippage you're willing to accept on an order if any. For example, if you set your Market Range to 3 then you market order will only be filled if the best available price in the market is within 3 pips of the price you clicked on. Otherwise, your market order gets cancelled. Note that this feature only limits you're negative slippage. You're still able to benefit from any positive slippage even if it's greater than 3 pips. The video below has more info on how you can use the Market Range feature.