Demo Trading Guide for Newbies
If you want to become a profitable trader, but just don’t know where to start, you might want to check out some demo trading accounts. Now, the fact of the matter is that trading profitably is not easy, especially on a consistent basis. It takes a lot of skills, tools, patience, and knowledge in order to become a profitable trader. This is true whether you want to trade the stock market, Forex, cryptocurrencies, or anything in between.
If you have never traded before and just don’t know what you are doing, chances are that you are going to lose every single last penny that you invest into you trades. For this reason, both to master using trading platforms and to get some trading practice in, using a demo trading account is strongly recommended.
As you are about to find out, demo trading accounts do come with a whole lot of benefits that can help you build your skills and confidence level, all without having to put anything real on the line. With that being said, there are some drawbacks and risks of demo trading that you need to be aware of, as well as some big time tips you need to follow in order to make the most out of your time trading demos. Remember, the point here is to turn you into a profitable trader with real money, not a master of demo trading.
What Exactly is Demo Trading?
If you don’t know what demo trading is, this is like practice trading. Most trading brokers and independent platforms offer these so called demo accounts, which is like a fake trading account that allows you to trade the market using real and live conditions, but without having to risk real money.
In other words, it’s a demo version of a trading platform that you get to use free of cost, risk free, and without having to invest real money.
It’s almost like practicing your race car driving skills with a video game, but in this case, demo accounts are actually very useful and can actually provide you with the knowledge and skills needed to be a professional and profitable trader.
It’s all about allowing you to trade with real market conditions, so you can practice, without having to put your hard earned money on the line. In other words, demo trading is a very realistic trading simulator that helps prepare you for the real thing.
The Benefits of Trading with Demo Accounts
Ok, so what you might want to know now is what all of the different benefits of demo trading accounts are. Sure, they definitely sound beneficial, but what are the actual benefits?
- Perhaps the biggest benefit here is that you get to test out various trading brokers and platforms. Not all trading platforms are the same. Some are harder to navigate than others, and some are more functional than others too. This way, you can figure out which platform is best for you.
- Of course, another massive benefit is that with demo trading, you get to test out the actual trading side of things. These demos use real and live market conditions to allow you trade in a realistic way, and this helps you figure out what kind of trading is best for you, and what trading entails in general.
- Demo trading is also a great way to figure out what market you want to trade on, whether the stock market, Forex, crypto, or anything else, and it also allows you to figure out what kind of trader you want to be.
- Yet another benefit that comes your way with demo trading accounts is that they allow you to test out a variety of trading strategies and to make adjustments as necessary in order to refine those strategies, so you can be as profitable as possible.
Some Risks of Demo Accounts
There are some drawbacks or risks associated with demo trading that you do need to be aware of, so let’s take a quick look at these.
- One big risk of demo account trading is that you will spend far too long practicing to the point where it becomes unrealistic, especially when compared to real trading. You just don’t react the same way to fake trades as you do to actually losing and winning money. The only real way to build confidence is to do the real thing.
- A big issue with demo trading is that you won’t really use all that much risk management. Of course, if you aren’t trading with real money, and if there’s no risk of losing real money, you might not see the need for risk management skills and strategies. Not practicing risk management is a great way to set yourself up for failure when you start real trading.
- The bottom line here is that demo trading just doesn’t feel like real trading, especially when you lose trades. In real trading, when you lose, you immediately analyze the results and correct your strategy, but with a demo account, you might just reset it without making any significant changes.
Demo Trading Tips to Follow
Let’s finish things off by providing you with the most useful tips to maximize the benefits you get from demo trading.
- You need to have a solid plan in place. Figure out what trading method and style is, what markets to trade, the timeframes to trade on, when to exit to take profit, when to exit to stop losses, and how to apply position sizing.
- You need a good routine that will let you check your charts, place trades, and keep track of them, without interfering in your daily life. Everybody has a different routine, but routine is essential.
- Remember that high frequency trading styles like day trading will benefit from spending at least a month on demo trading, whereas long term and low frequency trading, such as swing trading, will benefit from up to 3 or 4 months of practice.
- At the end of the day, the most important tip to follow is this one, only spend as much time practice trading as needed. You should start trading with real money as soon as possible, because this is the only way to figure out how you will react to real trading results, it’s the only way to build real confidence, and it’s the only way to actually make profits.
Final Thoughts on Demo Trading
When all has been said and done, the bottom line is that you should definitely try using practice trading accounts before the real thing, particularly if you have never traded before.
If you need help day trading, and what you need is a comprehensive education, particularly on Forex trading, then the best place to be is the Income Mentor Box Day Trading Academy. At this time, the IMB Academy is the most comprehensive, user friendly, effective, and affordable Forex trading school out there.