Forex backtesting is testing a trading system using historical data. In other words, you are trying to see if your choice of system would have in fact, made money if you used it to trade in the past. To do this, people use backtesting software.
Forward testing is essentially trading with a demo account. You use current data to test your system.
There are two basic arguments regarding the choice of method.
Backtesting will show without a doubt, if your system would have made you money based on past market movements. Now the question of whether the market will move the same way is where the doubt comes in. However, a system that consistently makes gains using different periods for backtesting can be safely assumed to be a viable one. Moreover, backtesting allows faster simulation compared to forward since all the data is present.
Forward testing on the other hand might be more relevant if there has been a major change in the currency markets, or global economic balance. This would be a scenario not unlike today. It is argued that forward testing is the most accurate determinant of trading viability for the current times. However, the disadvantage here is the longer period of evaluation.
Hope this helps
