If you are a participant of the financial market, or you have just been browsing through financial websites, you have been definitely exposed to ads offering to open a demo account. Trading with demo account is a modern way of paper trading. While the old-fashioned way involved writing down entry/exit point to analyze how methodology is playing out in the market, demo account allows you to experience this on a digital simulator. With this version you are able to review and test the execution of a trading platform before depositing your real money. Simply put, a practice account is funded with virtual money, which makes it possible to conduct fictive trades in order to understand pros and cons of broker’s platform, and also accustom to the software.
Most of the brokers are trying to attract potential clients by offering to sign up for a demo account with them. This way brokerage houses try to smite the newcomers providing exceptional support services hoping that in the future they will open a live trading account and eventually deposit real funds. In other words, we can clearly see that from brokers perspective practice accounts are mostly seen as marketing tools to appeal more customers. But whatever the reasons behind are, it does not really matter to traders, as using a practice account is a powerful tool to enrich Forex learning experience and improve technical skills to trade more productively.
Demo vs Live Trading Account
However, moving to the live trading account right after the demo version might become shocking, as there are many aspects you should know and prepare for.
- Live account has a lower level of execution: with a practice account price shown on the screen will normally be the one filling the market. While placing the order on the live market might be a subject to slippage and the price is usually different from the expected one. You should also keep in mind that with the real trading bargaining at the current bid price does not guarantee a fill, so most of the results obtained from a demo version might be misleading and not in agreement with the reality.
- The amount of money deposited differ from the virtual funds: most of the time, practice software allows trader to choose the amount of capital to simulate trading with. And in majority cases, these sums are huge and far beyond the real capital, that trader is ready to invest in his own account. It might be quite a deceptive concept, as with the more capital invested small losses are easily recouped, while in reality it is usually harder. The same goes with the trading instruments, which are usually more expensive and may not replicate with live experience.
- Emotional involvement: one of the main differences between simulated and live trading. As soon as you deposit your own capital, the fear of losing money might become devastating, and additionally it may prevent you from a proper implementation of your actions. Whilst you do not feel so attached to emotions with a practice account where there is no material impact on your life whether you fail or gain on the market.
Advantages of Using a Demo Account
Despite those shocking elements described above, and tuning yourself on a proper attitude towards practice account, you will benefit much more than you think. Demo account is a free opportunity to develop your own strategies and test platform’s execution possibilities. You get to study and use the software more efficiently, and that gives an opening to learn from own mistakes and polish trading plans. If you treat your demo account as a live one – remembering about the realistic approach, living and controlling emotions, and having a serious attitude – it is a great way to begin your trading experience gaining more confidence in your actions and start profiting with real investments into the market.
Post by Konstantin Rabin of Admiral Markets
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