A demo account is a marvellous feature offered by many brokers. You get the possibility to try new methods, indicators and strategies. And all this without risking your own money. But, of course, you did not come to the trading platform just for fun. You want to earn money that you will be able to buy something with. And this you can do on the real account.
The important question is when is the right time to switch the accounts? I will answer it in today’s article.
When is the right time?
Two traders’ types
When it comes to moving from the demo account to the real one, there are usually two groups of traders we can distinguish. In the first one, there will be all traders who switch to the live account too late. In the second group, those who move too early.
Moving too late
The demo account supposed to be a practice field before you start investing real money. But some traders seem to stuck at this point. They are using a demo account for years. They have the knowledge of the markets, they develop their strategies and make a regular profit. And when asked about the reason of not moving onto the live account they just give some obscure answers. They argue that they still need to do this or that, that they have to collect funds for a deposit or estimate risk.
It seems that the problem is psychological. The fear stands behind not moving forward. And this does not only concern Forex. It is not so uncommon that people are gathering information, they are planning to do something but never get to real action. So they stay in the safety of what they are currently doing. But they will never know how would it go if they never try.
Moving too early
There are, on the other hand, people who used to rush things. They trade a bit on a demo account. They make a profit. They feel confident, so they switch to the real account. And they fail.
These traders are often not properly prepared for real trading. They are afraid of losing, so they close the position as soon as it starts to lose or gains a very small profit.
Remember, it is better to make mistakes on a demo account. Do not rush things, wait until you have sufficient practice.
When is the right time?
1. The profits outweigh the losses
It is crucial that you achieve some level of sustainability in the long term. This does not mean one huge win, which can cover all your debts. What it means is that you are able to get a stable profit. It may be small, but it should be proved over time. You can, for example, test how many winning transactions you make over a half a year period or after 100 trades.
2. You are faithful to money management strategy
Having a money management strategy is one thing, and following it is another. Money management strategy helps you in controlling what is going on in your account balance. It is a set of rules like for example how much to invest in a single trade. I would recommend something around 1-5% of your whole capital. Such rules ensure that you will not lose everything in case the market does not go in the desired direction. There are no miracles in Forex. Everybody loses from time to time. But being faithful to your money management strategy helps you to obtain a regular profit.
3. Emotions are under control
Being able to control one’s emotions is very important in the trading business. Everyone is different, so everybody responds individually to his own feelings. It may sometimes seem impossible to maintain calmness, but by all means, you should try.
It is a good idea to train this skill on the demo account as well. However, investing real money is psychologically different from trading with virtual cash. Anyway, practice makes master, so the more you trade the more you get to know your own emotions and behaviour.
You should not get over-excited when you conduct a winning transaction. It may lead to distraction and mistakes. Also, do not get over depressed when the market is going against you. Remember, everybody losses sometimes. More important is what you can gain in the long term.
How long you should stay on a demo account?
The main purpose of the demo account is to give you time to learn the techniques, methods and strategies. It gives you an opportunity to know the platform well and to try different indicators and features. All of this contributes to the experience you must gain in order to switch to the real account.
Unfortunately, there is no ready formula. Nobody will tell you that you should do it in a month, or in a year. It is a very individual matter. People start at different levels. This is the decision you must make alone. I hope this article will help you to discover the right moment for you.
One more thing you can do is to do a progressive transition. What I mean by it is that after some time of trading on the demo account you switch to the live one but you start with a very small sum. You can deposit just 20 or 30 dollars. You will not earn a lot with such money but you will have the possibility to feel real money trading. Slowly you will increase the investment so you can make higher profits.
All the best!