How To Use Demo Trading Account - A Complete Guide
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Novice traders may experience some difficulties when they take the first steps of live trading. They can be uncertain about using the trading platform and have no idea which of their trading plans would work. To help them tackle this issue, reputable brokerage platforms offer free demo trading which is a crucial step to go through before putting capital at risk.
However attractive it may seem, demo account trading will be of no use if you don’t know how to operate it properly. Here is a quick guide explaining how you can benefit from demo accounts and what are the most striking disadvantages to consider.
What is Demo Trading?
Demo trading is a simulated trading area that enables you to practise your trading strategies and develop your skills without losing your capital or earning rewards. The demo trading platform empowers you with virtual money which you can use to open positions. It does not involve any risks of losing real money, and each unlucky experience can be followed by resetting the virtual wallet and trying again.
The main idea of demo trading is to get familiar with the brokerage platform and understand if it is a good fit for you. Additionally, you can challenge yourself: try out several trading strategies, boost your skills and only after making sure you are ready, move to real trading. While everything seems too straightforward, there are some nuances that if not considered can ruin your real trades even if you did great with your stock trading demo account.
The Pros and Cons of Demo Trading Platform
Switching your demo account to a real trading account, you may discover that things don’t work out exactly as you expected. If you don’t want to get a puzzled look when you take the steps of real trading, you need to get familiar with not only the benefits of demo trading but also how it can manipulate you. Here are the main highs and lows of online demo trading.
What are the Advantages of Demo Trading?
It’s free and easy to use. You don’t need to deposit any funds on the brokerage platform to use its demo trading account. Things work quite simply - you create an account, get your virtual money and start demo trading.
You get familiar with the design of the platform, and the trading instruments it provides. At first sight, trading platforms can seem strange and the unfamiliarity of the platform may confuse you leading to many wrong actions. Not to feel like a fish out of water, you can use a demo account to learn the pros and hidden cons of the broker, test out its features, and decide on whether you want to use it or not.
It doesn’t involve any risks of losing money. Perhaps, this is the best thing about demo account trading, which also gives you a sense of freedom. You don’t feel like you are dependent on something and can confidently test your trading plans.
It boosts your trading skills. As it says, failure makes perfect, and with every failure, you build stronger skills. So, demo accounts enable you to experience those failures and learn from them without losing your capital.
What are the Disadvantages of Demo Trading?
Demo trading involves no emotions in contrast to real trading. When you are trading demo, you don’t have any fear of losing money, so it’s all the same to you how your strategy will work. Plus, you can be as greedy as possible, and it won’t ruin your capital. However, these emotions spring out during live trading and greatly affect how you open or close positions.
The lack of risk may lead to testing trading strategies inappropriately. As mentioned already, if it does not involve any risks of losing money, you can test out whatever you want - and even execute trades that you will never do during the live trading. Hence, testing inappropriate strategies won’t benefit you during live trading.
No price slippage in demo trading. It’s a technical disadvantage though, so you may also consider the differences between demo accounts and real accounts. There are no price slippages, lack of liquidity and other similar factors that can influence your trades in demo practice but will greatly affect your real trading.
Demo accounts can expire. Some brokerage platforms set limits on how long you can use the same demo account.
What is the Best Demo Trading Platform
Are you looking for a brokerage platform that will enable you to use demo accounts before jumping to live trading? Below we have introduced the best trading platforms which provide demo trading and offer competitive fees for real trading.
eToro
eToro is one of the most reputable brokerage platforms and it accepts customers from over 140 countries. Setting up an eToro practice account is a quick process - the main requirement is to have an active profile. One of the positives of the eToro demo account is that it doesn’t expire. When you start your trading history, it gives you $100,000 virtual money which you can convert to any of the currencies eToro supports. Plus you can also ask the support team to decrease or increase your virtual money.
Pepperstone
Pepperstone is a popular forex broker that offers demo accounts through MetaTrader 4 trading platform. The registration is a straightforward process - you need to navigate the platform to find the “Try Demo” button. Next, you must fill in the registration blank and provide the necessary details. When the registration is complete you will get a link to your demo account on the MT4 platform. You can download MT4 on your mobile phone or desktop and start demo trading. A quick note - you can use the same demo account on MT4 only for 30 days.
Plus500
Plus500 is a CFD trading platform that offers a wide variety of trading assets, including forex, stocks, cryptocurrencies, commodities, ETFs, etc. Along with these features, Plus500 offers an easily accessible, simple-to-use and beginner-friendly demo account, which you can use without even creating a live account on Plus500. The broker does not set an expiration time on your account; plus you can open several demo accounts.
VantageFX
Vantage FX is an Australian-based forex broker that also supports trading cryptocurrencies through CFDs. The platform offers 3 different types of demo accounts while each of them has its unique features. Vantage demo accounts are not limited by time, so you can use them as long as you want and build your virtual portfolio.
XTB
XTB is another well-known brokerage platform that is focused on FX trading but also supports indices, stock, commodities and cryptocurrencies. It offers a 4-week free demo account which will give you access to more than 1500 CFD markets. Plus, the platform provides you with a $100,000 virtual fund to execute trades and create portfolios.
How to Create a Demo Account
To start demo trading, firstly, you should select a broker that suits your requirements and register for a demo account. The process may differ depending on the brokerage platform but basically, there are 2 ways of creating a practice account - you can either create a separate demo account or create a live account and activate your demo account. As soon as you get your virtual wallet with virtual money you can start executing trades. If you want to add your virtual funding, reduce it and in case of other questions, contact the support team.
What to Consider When You Practice Trading Account
If you want to truly benefit from a demo trading account, and use it effectively, here is what you need to consider before starting.
Trade as if you are trading real.
Use a trading plan and set investment goals.
Trade in low amounts as you will do in live trading.
Don’t pay attention to gaining high rewards, but test your skills.
Don’t execute such trades which you won’t do in real lives
Learn thoroughly how the trading platform works.
Consider differences between live and demo trading accounts.
Use different accounts to practice different strategies.
Conclusion
In a nutshell, demo trading can benefit you in several ways. It’s a perfect method to strengthen your trading abilities and test how ready you are to start live trading. Keep in mind that demo accounts are not about placing unrealistic trades and investing as much virtual money as the account provides. Moreover, you need to make the process as authentic as possible to be prepared for the risks and challenges of lie trading.