Many brokers have a demo account in their offers. Conditions of using it vary, so you must check carefully the terms with your broker. Most often, a demo account is free of charge and possible to utilise as much as you want to. It is supplied with virtual cash and there is always a possibility of recharging it when it is close to being drained.
A demo account is a marvellous feature. Nevertheless, it is good to have an idea about the differences between the demo and live accounts. Let’s look at this topic.
Differences between demo and live trading
Differences in execution
Your orders in the demo account will be most probably executed immediately. In a demo environment for the specific instrument price, the market is normally able to fill any size of your position.
Nonetheless, when you act in a live trading environment, a slippage in order execution may occur. The size of the position is related to what is accessible in the market. In other words, you need a counterpart for your transaction. If your position size is very large you can experience slippage. This means that part of your transaction can be filled with a worse price. Liquidity and volatility dictate spreads.
This is true that a demo account reflects the market conditions in a live environment. But it is never 100%. A broker needs to pay fees for the quotes from the live market and to liquidity providers and cover other expenses. Maintaining a demo account is less expensive. But so data available in both account types may vary slightly.
Emotions will be appearing during your trading journey. No matter you are using a demo or a live account, you will experience different emotional states. And as it might be a good idea to practice having control over one’s feelings in the demo account, it is also true that live trading will bring another impressions range.
You are aware you do not risk your own money while using a demo account. So you can allow yourself for more, you can open riskier transactions or for bigger amounts. You realise, there will be no real-life implications.
A danger lies in developing bad trading habits. You may find yourself unable to implement a certain discipline in trading in a live environment. And so it can lead to a disaster.
Advantages of a demo account
A demo account can be used to your advantage as an educational medium. As I have already mentioned, the possibility to practice in a risk-free environment is a wonderful thing. Just use it wisely. Try to treat it the same way you would be trading in the real account. Use a demo account to know the trading platform and available tools.
When you come across a new technical indicator or a trading strategy, head to the demo account and see how it works. Maybe it is something for you and you will take it to the real trading. And maybe you will find out it does not serve you and you would only lose money with it.
Experiment with different approaches and learn the trading craft in a safe place like a demo account. It can help you improve trading performance.
A demo account is recommended, especially for beginners to see what trading is about. But also later on it can be a very useful tool where traders can test new systems and strategies.
All the chart types, technical indicators, and other features are the same in both, a demo and a live version of the trading platform. However, there are some differences and the first is you do not risk your money. And it may influence the process of decision-making.
Recognise your emotions and learn to respond to them beneficially.
Another difference is the occurrence of slippage in a live trading environment where market conditions and liquidity providers dictate spreads.
Use a demo account to your advantage. Do you have any insights into this topic? Share them with us in the comments section down below.