Nowadays, people are engaging more actively in getting hands-on experience in the trade market to make money. In 2018, the global trading volumes broke all the records in the foreign exchange market. However, it is important to understand all the technicalities and features of trading to avoid the risk of losing your material wealth.
The well-known trading method, Forex Trading, is where many people have made a huge amount of money. If you are new to trading, it’s time to get on with the research and understand whether this is the right place for you.
Once you have covered all the learning sessions of trading, it is the right moment to gain practical experience. Before diving directly into the live account and start investing real money, you must practice through the demo account. Why? You need to put your skills to test first and gain enough confidence to trade in the real market.
Are you interested in working with the global financial market and get your trades profitable over time? You have come to the right place as this guide will lead you to how to become a successful trader.
What is a Demo Trading Account?
A Demo Account for Trading is a platform for new traders who want to practice trading without any risk involved by purchasing and selling fake money, just like the real market environment. It is commonly known as paper money because of the involvement of virtual or fake money. It provides a chance for the beginners to understand the platform and deviating from different strategies without any possibility of losing your real money.
Many schools have adopted the feature of using a Demo account to teach the students about the fundamentals of investment in the stock market. The students all around the world can manage their demo accounts and monitor their investment performance during the semester.
Difference Between A Demo And Live Account
While the setup for a demo account is free of cost, a live account may require you to pay some charges while registering. Apart from that, the basic difference lies in their execution and psychological differences.
Differences in execution
A trader may execute trades in demo accounts smoothly and instantaneously. But, in the live account, liquidity providers and market situations dictate the spreads, which may lead to the occurrence of slippage. In the demo account, you are free to fill any volume for the spread provided, but in the live account, the position sizes are unpredictable.
Brokers from the live account have to pay some amount to access the quotes with an additional cost for the liquidity provider. On the other hand, demo accounts offer cost-efficient demo services to beginners.
Managing Your Emotions
While investing your money in the trade market, there is always an emotional and psychological turmoil taking place. In some cases, our judgements are clouded by our emotions in terms of self-assertiveness or, sometimes, indecision.
In the demo trading environment, virtual money offers no real-life repercussions. You can quite effectively evaluate the profit and loss of money without any worries. This does not happen in the live account where the fear of losing real money is at risk. For this reason, this impacts the trader’s material and psychological ability.
How to Use A Demo Account Efficiently?
There are certain steps involved in using a demo account efficiently to become successful in the future.
Deviate A Trading Plan And Practice On Demo Account
It doesn’t matter if you are using a demo account or a live account; you must come up with a trading plan and treat this platform as a live account.
Your plan may have these pointers:
- The sessions you would like to trade such as the London session, Tokyo Session, or the New York session, etc.
- Creating different strategies that you can apply for increasing profits.
- Search for the markets where you can trade. You should concentrate on only one currency pair when you are new in the trading, but some traders would like to focus on all the major 28 pairs that Forex provides.
- Keep track of your progress in a trade journal.
With the help of the journal, you can record your past activities and profits. You can decide on this basis whether you can move to start trading with the real account or not. For instance, if your 7-8 trades are concluded with profit out of 10, only then can you consider transferring to the real account.
Make Yourself Familiar With The Trading Platform
With a Forex Demo Account, you can explore the trading platform and learn how to close or grab a profitable trade. Moreover, how you can use a variety of tools for your advantages, such as trading indicators and various order types.
Before jumping on to real trading, you must understand the very basics of trading. Panic and stress is the last thing that you want to experience when you don’t know how to trade.
What You Cannot Perform With A Demo Trading Account
With numerous benefits and features, there are limitations too in the demo trading account. You must understand the restrictions that you might face while trading through the demo account.
Look at the points below for more clarification:
You Cannot Validate Your Trading
No matter how much profit you have increased on a demo account, it will remain unaccountable unless you shift to the live account.
This being said, the demo trading platform is necessary to build confidence and train yourself in executing the orders, but the good result amounts to nil.
Does Not Prepare You For Real-Time Trading
Live trading is much more than identifying trading and then following a price. Live trading is overly emotional because of the risk of losing money. Hence, demo trading won’t aid you in handling the quantity of pressure of trading and uncertainty, not ending the profitable trades on time and, therefore, the discipline to attend for the proper time to form a trade.
Tips While Making A Transition From Demo To Live Trading Account
Till now, you know how a demo account works and what its limitations are. It is time for you to put your trading skills into professional live trading slowly and smoothly.
Below are some points to help you when you are shifting from a demo account to the live account:
Always Begin With The Small Amount
When you first enter into live trading, there is a high probability that you would lose money. Therefore, do not invest a large sum that you cannot afford to put at the risk of losing.
At the same time, this step will guide you to how and where you have high chances of getting profitable trades. After all, we all learn from our mistakes.
Keep Your Emotional Capital Under Control
Don’t be too hard on yourself once you lose money because it is a part of the trading sector. A new trader can easily get demotivated and become frustrated during this trading business.
They dream of making money as quickly as they enter live trading, but the number of traders decreases tremendously as they face failure and loss. About 80 % of new traders quit trading within the time period of two years, and after five years, just 7% can retain their position in trading.
Money Should Not Be The Top Priority
Your major concerns in live trading should be to maintain discipline, a robust trading routine, and a passion for trading, and lastly, have faith in your instincts. You want to create a solid foundation alongside a powerful and long-lasting money management approach to sustain within the business of live trading.
Frequently Asked Questions
How Does A Forex Demo Trading Account Work?
You begin with a free demo account with a broker of your choice that can provide you free and enough trading cash. These brokers will offer you either a proprietary trading area or a universal MT4 platform, from where you can directly enter into trades. You may also lose and win, depending on the prevalent market situations and your inspection accuracy.
How Long Will A Demo Account Be Available For Trading?
Most of the demo account is available for a trial period of 30 days after that, you won’t be able to login or use the account. But some of the brokers do offer unlimited access to the demo account under certain conditions.
Can I Get A Demo Trading Account From All Trading Platforms Or Brokers?
Every trading platform or brokerage firm provides an opportunity for their clients to trade and practice in a safe and secure environment. It will entirely depend on the broker’s decision to provide you with 30-day or 60-day access, sometimes even unlimited access to the demo account.
Bottom Line
Demo Account is your way to achieve success in the trading sector. You will acquire a broader picture of the working on the trading platforms, the tools and indicators they use, and much more.
The one crucial aspect of using a demo account is to get an insight into the variety of trading pairs accessible through the trading platforms. Additionally, you will get yourself adapted in following the strategies and sometimes developing unique master-strategies on your own.
Make sure you do not make unrealistic and high expectations and understand the motives behind getting into trading. Enjoy the whole process while it lasts.
Open a demo trading account with IC Markets or eToro and get first-hand experience of everything!