If you’re new to the online trading and finance world, demo accounts are a fantastic place to start. Not only do they let you inspect a broker’s service, but you can actually get some hands-on experience without losing money.
All you need to do is join a broker that offers a demo account, and you’ll have the opportunity to start trading. However, you do need to keep a few things in mind. Namely, demo trading isn’t always a 1:1 experience with real trading. Because of that, today we’ll try nad teach you what to do or avoid when using a demo account to learn how to trade.
While demo trading is fairly similar to the real thing, there are some differences that you need to pay attention to. The first is that some features may be locked, but we can put that to the wayside. That’s because there’s nothing you can really do about it.
Next, there may be liquidity and execution differences. Because the demo platform doesn’t need to actually buy and sell off of markets, the network strain is much lower. That means it can have instant execution without any liquidity or slippage. With real trading, you may run into liquidity issues, especially if the market is in a volatile mood while you’re buying and selling.
However, even that is a slight difference that won’t affect newer traders much. A much more significant discrepancy is psychological.
Traders tend to misestimate their success when using demo platforms, simply because they aren’t using their real money. That’s especially true if the platform allows leverage. In turn, they can get a false sense of success, which can lead them to become overconfident when trading for real.
Use the Demo Platform Realistically
Building on our previous point, if you want to use a demo platform, don’t take half-measures. Research a broker that you would like to use, since platforms differ between companies. Once you find one, trade on their demo platform like you would with your own money.
And since brokers tend to offer massive funds straight away, we suggest limiting yourself. It’s unlikely that you’ll start trading with $100,000. As such, find a realistic figure that you’d actually feel comfortable investing, and limit yourself to trading with that much.
And from a technical standpoint, just trade soundly. Set stop losses and take wins, and actually get out of positions when you actually would. That way, your account report and status will actually show your slate instead of inflating your ego.
Devise a Strategy
This is the second most important piece of advice, and it pairs with the previous one. If you’re using a demo strategy to just pick up assets that you like, your approach is likely too haphazard. It might work out in the short term, especially if your assets are popular at the moment, but such tactics always crumble under pressure.
As such, research some trading strategies, however rudimentary, and try applying them. That way, you’ll also find your niche as a trader, which will make it easier to specialize later on.