Vast majority of investors begin their adventure with financial markets on demo account, but most treat this type of account as a sandbox. Once they learn to play with sand, they start serious trading on real account. Demo Account is an account with virtual capital replicating real market conditions. Brokers offer instruments, trading conditions – as well as trading and price movements should be real and only funds on your account are virtual. Such practice account can be used in several ways, bearing in mind the following.
Brokers real account offer can differ from demo
Not all brokers provide demo accounts trading conditions identical to those on a real account. Some of them assume that demo account is only for getting familiar with trading platform (eg. MT4). If a representative of a broker in this way encourages you to place real deposit and hurries you to invest on real market you should instantly turn him down.
Part of brokers provide demo accounts, where the offer is not identical to the offer of real accounts – there are other spreads or no commission. There are also situations more confusing when offer is seemingly the same, but for example, the time of execution of orders is quite different – on the demo we have impression that you had not yet clicked the button and the order is already executed. Meanwhile, on a real account it can take half a second and perhaps even three seconds in extreme cases.
Another problem may be slippage – execution at different price than accepted. Slip on the FX market is something relatively normal but if we trade on the demo you will not experience slippage. The execution of orders at a lower price or execution of defense order at wrong price puts us in a less favourable position in the market or simply deepens the loss in real market conditions. Therefore often the case that strategies do well on the demo and in real account lose or at best go round and round. You need to have that in mind, making accurate measurements of your trading.
Is it worth using a demo account?
Of course. Besides knowing the basic features of the trading platform a demo account will be our friend in struggle with the market for a long time. It is worth exploring the market and its price movements, learn strategies, conduct research, build systems, practice keeping position precisely on the demo account. There you will not feel the severity of losses and not come across a number of psychological problems in trading, while you do not understand how the market works itself.
In such a situation, getting to know the market can be effectively disrupted by strong emotions. Also, after many years of trade on real accounts, many investors may use parallel demo account for testing, so it is not only account for the so-called newbies. Of course, nobody wants to be a novice forever but everyone of us was him so what’s important is to go through this period and do not ruin yourself in the meantime – in that demo account will be irreplaceable.