July 5, 2021, | AtoZ Markets – At the very beginning of their trading, many traders think about the questions – is it worth opening a demo account or immediately start trading for real money? What is the difference between a demo and a real account? Having learned how to trade on demo, will I be able to trade successfully on a real account as well?
The Internet is replete with attractive offers for opening demo stock accounts. The forums are full of traders’ stories about their experience on the demo and how much they earned. All this looks so attractive that it is difficult to believe in the success of such a trade. The truth, as always, is somewhere in between.
What is a demo account?
A demo account is a free demo trading account that almost corresponds to a real one, but you conduct all trading with virtual money. You make a profit or drain your deposit with virtual money. Opening a demo account takes about 2 minutes and is not difficult for a trader.
When registering, the main points are you enter personal data and form an account (currency, server, deposit amount, etc.). If you are already a brokerage company client, you can open such an account for yourself in your Personal Account. If not, you can open an account in a trading terminal (for example, Metatrader4), which you download from the developer’s website.
Practice trading with demo stock accounts now
- To get acquainted with the trading platform and the peculiarities of the trading market. You can study charts, make market observations, analyze stocks. You will not jump with a parachute without first reading the instructions.
- To get acquainted with the financial instruments on which you will trade. You can test each of them and figure out how they work.
- To hone your technical skills. This is important when in real trading there is no time to think about actions and the speed of reaction is important.
- To test your trading strategy. You can see how your strategy will work, its advantages and disadvantages, and bring it to an ideal state.
Advantages of a demo account
- Its opening is a matter of a couple of minutes and clicks.
- It does not need to be replenished and you can use it for free.
- You can hone your trading skills in comfortable conditions and without risks, study the features of the market and instruments, and develop your own trading strategy.
- It has no expiration date.
- You are not risking real money, which eliminates the problem of psychological pressure and stress.
Disadvantages of trading on a demo account
- You are trading with virtual money. Your sense of responsibility for this money and your trading mistakes is dulled. Just think, I leaked a deposit of $1000! Tomorrow I’ll open a new one.
- The absence of psychological pressure and emotional stress makes you very discouraged. You become inattentive to your trading. You can stop placing stops and trade at random.
- You get used to opening positions quickly and with quality. Demo and real-life orders work differently. Demo orders are executed faster, but in reality, this is not always the case. Dishonest brokers in reality can cheat and you will be left “with a nose” and without a deposit.
Difference between demo and live account
If you are wondering if trading on demo stock accounts and trading on a live account is different we will immediately answer that in a certain way yes. In particular from the psychological point of view.
We mainly address beginner traders who have not yet accumulated the right experience that allows them to manage the emotions that can affect the success of their trading operations.
The demo stock accounts can be opened for different reasons, some need to practice to improve their performance, and others instead because they want to try different strategies or test new platforms. All this should be done with this type of account because it can be opened for free, the time of use is unlimited and also virtual money is used.
So far we have seen the positive aspects, but when you decide to open the real account and then use your savings you will notice that you will find some difficulties that you have not experienced with the demo account. We are exactly talking about the emotional aspect.
Is the emotional aspect important in online trading?
Usually, with the demo stock accounts, most of the operations can be closed positively, which does not happen very often with the real account. Psychology in trading plays a key role.
One reason could be that since you are managing your own money, emotions are activated that you had not experienced with the demo account because you are using virtual money and therefore you do not have to worry about losses.
Therefore, it is inevitable that you will have feelings different from the demo account with the live account. You realize the fact that you are dealing with actual losses, it is your savings and therefore you are afraid of losing them. Eliminating emotions is impossible but with experience, you can learn to manage them.
The demo account, however much you undertake to use it as if it were a real account, you are always aware of the fact that you do not run any economic risk. Consequently, not being afraid of making mistakes, they also make very risky investments. On the one hand, this is good because you can learn many things by making mistakes.
However, it will be difficult to maintain the same attitude when you are managing real money. This is because you can feel emotions such as anxiety and insecurity that surely if you let yourself be overwhelmed will affect your decision and therefore the outcome of the operation.
Some emotions can lead to making wrong decisions, for example, fear can lead to closing operations in advance without then making any profit.
What we can advise you when investing on the stock market with a real account is not to think about the risk of losing your money or on the contrary of becoming a millionaire with a single investment. You have to focus your attention on other aspects such as how to proceed in that particular operation, which trading strategy to implement, how to manage risk, and much more. All this will surely help you to ease tensions and therefore to remain more lucid and make decisions with more rationality.
When to switch to a real account
This question is of interest to everyone who starts their work with demo stock accounts. When the market or exchange has already been studied, all the stages have been passed, you need to move on to real trading.
When is it worth changing a demo account to a standard one:
- The functionality has been studied, there is a good orientation in the terminal, the trader knows how to use all the possibilities.
- There are more positive trades than negative ones.
- Money management rules are skillfully used.
- Trading strategies have been tested, conclusions have been drawn and everything is ready to be applied in real trading.
- The trader has learned to control his feelings, feels confident in his work, knows how to cope with destructive emotions.
How to open demo stock accounts
The international stock market is volatile and requires certain skills. That is why a beginner is advised to open a demo account. Professional brokers offer to use the demo version on different conditions – registration is required, without registration and confirmation of personal data.
For experienced traders who use the training program to study the broker’s line of tools, determine the speed of order execution, assess the quality of the trading system, it is advisable to register an account.
To open demo stock accounts, you need:
- select the “Open a demo account” tab in the stock broker’s interface;
- download the program after entering all the required personal data;
- install the software on a personal computer, having previously selected the instruments for trading.
A beginner has the opportunity to choose a virtual program for trading currency pairs, commodities, securities. The stock market is multifaceted, which allows you to earn in different ways.
Tips for trading on demo stock accounts
Trading on demo stock accounts is like playing a virtual WarCraft game. In it, you are a super-hero, invincible and fearless in the face of danger. Can you in reality also keep your cool in the face of danger and kill enemies, be confident in your strategy?
A person is so constructed that he learns only from real experience – when he can feel the “taste” of real money, victory, and defeat. Only then can he learn and appreciate the acquired experience. You can determine for yourself the amount of your minimum real deposit and train on it. Learn faster, be attentive, feel the emotional risk of loss.
Online trading is an activity that can become very profitable if performed with dedication and constancy. Demo stock accounts are an unmissable help that the stockbrokers make available to you. Thanks to the demo account you will learn to manage your emotions and develop effective strategies, it is also good that before actually signing up in a broker you have the knowledge and experience to succeed in your investments.