Pros and Cons in Demo Trading
If you’re looking to start investing, one of the first things you’ll want to know about is demo trading. What exactly does it mean? How can it help your skills in the market? We’ve got all of the answers and more in this guide to using demo trading to improve your skills in the market! Let’s get started!
What is demo trading?
Trading demo accounts are often provided by stock trading platforms, foreign exchange trading venues, and commodities exchanges. You can use them to try the trading platform before signing up for an account. Demo-trading is the use of a simulated environment that allows users to practice trading. However, there is no actual risk since they will not be entering trades on the real market. They can view how their trades would have gone if they did trade in a live environment. Let’s look at the pros and cons of demo trading
Pros of demo trading
No risk involved
Since you are using virtual money to trade your account, there is no risk involved every time you trade in the market. The good thing is every time you lose you won’t experience any real losses in your account same as well when you win.
The common factor between demo trading and live trading is that you have an account currency. You are going to trade, a plan, and a method of doing things. All these are important elements of any business venture. Meanwhile, doing live trading all your actions must be well calculated. All because real money is involved unlike when you do demo trading.
Testing out your trading strategy
You will be able to try out strategies and systems that will fit you. In this case, you may be able to try all the types of trading strategies. Be sure to find out what will fit you. When you are on a demo account, there is nothing to lose everything except your time. Furthermore, it can help your skills by allowing you to trade with a wide range of assets and currencies. Lastly, one thing about demo accounts is that it is free. Therefore, they will be nothing to worry about wasting money on something that does not work for you.
Understand and Familiarizing with how the platform works
Every time we try new things we all need to understand and familiarize every concept of it. In this case, for demo trading, you will be able to test out all the necessary information. Everything that you need to know and get familiarized with them. Thus, when you shift to live trading it’s not hard for you to adjust. In terms of the trading platform that will be used in ATFX, you will be using the MT4 trading platform. For you to trade in the market for demo and live account.
In MT4, there are a lot of indicators and other technical analysis tools that you can easily understand. By understanding how all these work, it will be easy for you to use them when trading online. You will also get familiarized with how a demo trading account works. When using demo trading, it’s like playing in a game wherein you have 100 USD and 0 risk of losing everything. That is why you need to keep practicing until you think you are ready for real live trading.
That is the good thing about a demo account you can practice for unlimited time. Every beginner needs to practice and try out their strategy if it is profitable in the long run. Not only that, but you will also learn all the trading processes while trading in the demo account. But, remember don’t stay too long on a demo account if you think you are ready you can now go for a live account.
Cons of demo trading
No emotions involved
Demo trading can’t replicate the emotions that you encounter from live trading since there is no real money involved. The downside here is that if you have losses and winners in the demo account you won’t feel the excitement, fear, or greed while trading. As a result, there is no pressure that you feel in demo trading compared to live to-trade.
While many traders will argue that demo trading is not realistic, you should use it as a way to identify gaps in your risk management and understand what happens when you enter a trade. This is important because once you have identified your risk appetite and know how much money you are willing to lose, then you can make informed decisions about where and when you’re going to place trades on a real account.
Bad habits you might develop as a trader
As a trader, we all have good habits and bad habits. If we practice good habits in the demo account and then apply it well in the live account then there is no problem with it. Since it already stays in our subconscious mind, the good habit that we must do before, during, or after we trade. On the other hand, if you have a bad habit during trading a demo account you might bring it when you will trade to the live account. To avoid this kind of problem, before you proceed to a live account, you must first build a proper good habit while trading in the demo account.
When we start trading, especially if you are a beginner, you might have a little bit of excitement that might affect your mind and your skill. For example, if we have a demo account we always place a long position when the market goes up and a short position when the market goes down then it is a bad habit for us because we might follow it even though sometimes it does not make sense.
Lack of real-time experience
When we stay too long at the demo trading, we are lacking experience when it comes to trading at the live market. Technically, we are trading in the real-time market but the real emotions and real-time execution are not there since we are only trading virtual money.
If you want to become a successful trader, you need to take a real-time risk and be able to execute well in a real-time environment. You will not be able to do that on the demo trading platform since you can not trade with your own money. You are only trading virtual money which is just a copy of the actual market trends. The way how people act and react there is different when they trade their real money instead of their demo account balance. It’s like if you go play poker or casino with free chips.
No live market fluctuations
In a real-time market using a live account, you will become cautious when entering the market since there is high volatility and there might be you will get easily stopped out or easily gain profits. We are talking about the fluctuations in the market meaning there is high volatility in the market. Using a demo account will not matter since there is no risk and emotions involved. But, using a live account, there is a risk and real emotions involved.
There is a risk involved when you start investing and trading with real money. You will lose your money if you do not know how to manage or trade well because of a lack of experience or skills. You need skills and knowledge about what you are doing so that you can go through fear, greed, and panic.
Reminders for all beginner Traders
As new traders, there are many things we can experience in demo or live trading. There are always pros and cons whether you are trading demo or live. But, in the end, it’s all about how you become disciplined with your system in the demo account and APPLY IT rationally in the real account. We must realize that it’s not a matter of succeeding or failing, but making a better judgment on how we trade. We need to learn how to differentiate losing trades from winning trades, so we can keep our account size intact and build up profit over time.
Do you wish to learn more about investing and trading strategies? There are more than enough learning sessions to get you started, regardless of your learning style. With Smartrade, you can pick from experienced-led courses and study at your speed, with lifelong access to free one-on-one coaching. You’ll also learn the fundamentals of day trading, Forex, CFDs, Stocks, and Commodities. To learn how to trade with SmarTrade, visit http://www.smartradeph.com/