Online trading is a potentially lucrative enterprise, but it requires some knowledge and skills. Making a mistake can become a depressing and expensive lesson. A demo account trading provides an excellent opportunity to acquire and practise trading skills and gain sufficient experience with no monetary risk at all. It also gives you a chance to experiment with your personal trading strategies as well as to test and get used to the new software. Thus, a demo account is an effective and free school to attend before plunging into the real action on the financial markets.

What is a demo account, and how it works

A demo trading account is a simulated account funded with entirely imaginary money, but it still includes all the functionalities and technical indicators of a real account. Its purpose is to reproduce some or all of the features of a live market in order to let you practise trading skills by manipulating imaginary assets and simulating trading transactions in a manner similar to the real markets. For example, a player can create several positions simultaneously in order to compare the performance, advantages and risks of various strategies. This way, you can familiarise yourself with the actual online trading process before investing real money into it.

The most popular and widely used trading platform is MetaTrader 4 (MT4), which is available almost worldwide. With your MT4 downloaded, you will be able to analyse markets via numerous technical indicators that include chart figures, support and resistance lines, currency correlations, among others. You can experiment with many different markets in order to discover the ones that suit your style best. Plus, this platform enables you to continue to test your strategies for as long as you like since most MT4 demo accounts are unlimited, and all that with no risks whatsoever. These and numerous other built-in features make MT4 an ideal mechanism of identifying your potentially strong and week points.

As a rule, demo accounts are easy to open. Providing very few basic details about yourself, like your login, e-mail address and location, is all that is required before they send you your password together with a detailed instruction on how to proceed. As soon as you receive your account number and password, you should download MetaTrader4, and you are ready to start.

The pros and cons of demo account trading

A demo account enables you to explore and master various trading instruments, like stocks, futures, CFDs, cryptocurrencies, and others, without having to pay for your mistakes. During your simulated trading, you will learn some basic skills, like opening and closing positions, reading price charts, applying stops and limits, interpreting news feeds and executing reversal trading. In addition, you will be able to experiment with some highly advanced and sophisticated strategies that include leverage, short-selling and derivatives trading.

Nevertheless, there are some drawbacks too, which could all be summarised with the simple statement that, no matter how close to real life demo trading may be, still it isn’t.

  1. a) The execution is better than in real life as slippage isn’t accounted for.
  2. b) The starting capital is unlimited, and all the instruments are free, so players tend to invest more than they would choose or could afford to in real life.
  3. c) The price doesn’t change between submission and execution, which would lead to a deal rejection on the live market.
  4. d) Since the whole thing is a game after all, the players tend to take it less seriously than they would have to in real life.

Conclusion

A demo account seems to be the best way to learn the tricks of online trading with no financial risks or study fees involved. It is also easy to create, and the opportunity is available worldwide. In addition, demo accounts have something to offer both novices and experienced trainers. With the disadvantages of demo accounts in mind, you will also be able to benefit from your practice more by making your demo trading as realistic as possible.

  1. a) Keep your demo account rules, such as position sizing, risk amounts and leverage, as similar to a real account as possible.
  2. b) Make realistic assumptions that, for example, bids or offers are filled only if prices trade through by at least a cent. In addition, assume larger slippage in lower volume and more volatile stocks.
  3. c) Whenever possible, trade the same, more modest amount of capital in the demo account as you would on the live market.
  4. d) Learn to pretend the money is real so that you may start training yourself to manage your emotions and mental attitudes and to adjust your habitual behavioral patterns.

And when you feel like you’ve practised enough, making steady profits from session to session, you may move on to the real action.