One of the most common trading FAQs we get is about how, or why, you should use a Demo trading account. Our usual response is that it’s one of the most valuable things you can do – especially if you’re new to trading. The main reason being that a Demo account uses virtual funds, hence you’re never putting any real money at risk. At the same time, you’re still getting the same functionality and trading experience as using a Live account, making it the perfect way to learn how to trade.
Different ways to use a Demo Account
If you’re already a trader, a Demo account can be just as useful. Because of the lack of any real-world consequences, it’s the perfect place to test out new strategies.
The following are some examples of where a Demo account would be ideal to existing traders:
Testing new strategies and EAs
Changing up your trading styles. For example, switching from day trading to night trading
Trialling new lot sizes, stop loss levels and tools
See how some different currency pairs perform against your favourite
But there’s a danger of being reckless with a Demo account.
That’s because when you’re trading in a Demo account, you’re not trading with any pressure - there’s literally nothing to lose. As much as you like to think otherwise, when you move to a Live account and the risk of losing your own money becomes real, it weighs on your decision-making. Without a safety net, it’s only natural to approach things a little more cautiously.
Approach your Demo trading like you would Live Trading
Here are some handy tips, that can help you practice this live trading.
Tip #1: Pick the same type of account
Choose an account type similar to the live account you plan to trade with. Pick the same account size, leverage, currency etc. that you would trade with when you make the switch.
Tip #2: Trade how you normally would
Don’t place larger positions or open orders without looking at your charts or Market Watch board. Trade like this was actually your real money.
Tip #3: Don't trade beyond your "means"
For example, if you’re the type of trader that will only be trading small lot sizes, there’s little benefit in placing huge trades using the Demo account. All that does is create an unrealistic representation of what your Live trading experience will be.
Tip #4: Make the loss seem real
A fun suggestion from Babypips includes giving yourself minor 'punishments' for each loss. As you you don't really lose anything in a demo account, Babypips suggest doing things such as "90 second planks" or do an extra chore as a physical reminder of loss.
Ideally, you want to make the transition between a Demo and Live account as seamless as possible. And that means treating your Demo account like a tool for learning, not a toy for play.
Some other great articles you may want to read:
Psychology of Trading: A great piece about understanding trading emotions with both demo and live accounts and also steps in managing these emotions.
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