Trading stocks is an activity that has been popular for centuries, but the emergence of online trading platforms has given us new ways of doing it with the latest technology and without leaving home. Demo accounts let you get started easily without any risk, but how should you use them?
Practise Your Trading Style
There are various methods for trading stocks, with demo accounts giving you the best way of trying each of them. Scalping is the shortest-term type of trading, as you open and close positions in a matter of minutes or hours.
Day trading is where you make sure that you always close your trades on the same day you open them. Swing trading often has a longer time frame, as you look to take advantage of momentum in the market.
Each of these styles requires a different set of skills. For instance, scalping requires discipline and fast decision-making to make it work. This means that it’s a good idea to practise each of the styles that appeal to you and see how you can carry them out with dummy orders where there’s no real cash at stake.
Try Different Instruments
These online platforms give you more options than simply buying and selling stocks. If we look at this contract for difference CFD trading platform, we can see that it’s possible to trade stocks in this way, as well as commodities, forex, and other investment types.
CFDs are financial instruments that let you try to predict whether the underlying asset is going to rise or fall, without having to actually buy it.
Other options include exchange-traded funds (ETFs), where a basket of stocks is brought together in one asset. This gives you a way of focusing on a sector or a geographical region without having to choose a specific stock. By using the demo trading opportunity, you can see which of these is right for you.
Understand the Charts
Charts play a big part in stock market trading, with online platforms now integrating them seamlessly. Candlestick charts, bar charts, and line charts are all used to give you different ways of looking at the data.
The main trading platforms offer varying timeframes, too. Traders carrying out day trading will probably want to look at the shortest timescale, such as the five-minute and 15-minute charts. To start scalping, you might want to use these charts together with the one-minute chart to capture the fastest price movements.
Get to Grips with Protective Orders
Protective orders are used to make sure that you’re protected in the case of sudden and unexpected price movements.
A stop-loss order is used to automatically close your position if it falls below the level you’ve stated. With a trailing stop-loss, the sell price is automatically adjusted in your favor if the stock moves in the direction you want it to go.
Take-profit orders are used to close the position once it reaches a point where you’re happy to cash out. If you open a trade without a stop-loss or take–profit order, you run the risk of losing control of the situation if the price swings drastically.
While this sounds fairly technical, platforms like MetaTrader5 and TradingView make it easy to use them. You can also use a demo account to try different kinds of orders, like market orders and limit orders.
Try Trading at Different Times of Day
The stock market is more volatile at certain times of day or even certain days of the week. The volatility is also affected by issues such as major economic events or announcements.
Central bank announcements about interest rates and monetary policy can have a huge effect on the market, with many traders opting to avoid entering any positions around the time of an announcement like this.
According to the day-of-the-week strategy, there may be best days for buying stock, although not everyone agrees that this is a good strategy. Therefore, the best idea is to try your demo trading at different times, to get a feel for which days or times of day suit you.
What Comes Next?
You can start demo trading just by opening an account and starting to use the platform. Once you’re ready to trade with real cash, you’ll need to add funds using any of the accepted payment methods.
You might also be asked to carry out the know your customer (KYC) process at this stage, before trading with real money. Be sure to follow good investing advice, such as not putting more money at risk than you can afford to lose.
Using a demo account gives you a sensible way to start trading and trying different strategies. It doesn’t require a lot of technical knowledge, but you should be sure that you understand the different tools available before moving to real money trading.
Disclaimer
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it.
Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.
