How to do Demo Trading
If you would like to start profitably, whether it is Forex, cryptocurrencies, the stock market, or anything in between, something that you may want to try doing is demo trading. For those of you who don’t know what demo trading is, it’s just like a great way to practice your trading skills without having to risk real money.
Now, with all of that being said, although demo trading does not force you to trade with real money, there are still certain risks involved. Moreover, there are also some crucial tips that you need to follow, because if you engage in this type of trading improperly, you will set yourself up for failure once you start trading with real money.
Today, we want to provide you with an in depth guide on demo trading, complete with all of the benefits and drawbacks that it comes with, the mistakes that you need to avoid making, and how to do it properly.
What’s the Story with Demo Trading?
Alright, so for those of you who don’t know what demo trading is, this is a type of trading that allows you to test out a trading platform without having to trade with real money. This could be for a standalone trading platform, or it could be a broker’s trading platform.
The bottom line is that this is all about trading without using real money, kind of like practicing your real estate skills by playing monopoly, but actually useful. In other words, demo trading involves using a trading platform just like you would with real money, but with virtual money.
This allows you to trade under real and live market conditions without having to put your own money on the line. As you can tell, this has the potential to be extremely beneficial for any newbie trader.
The Benefits of Practice Trading
Now, you might be wondering why you would actually try demo trading. After all, if you could trade with real money and make profits, why wouldn’t you skip the practice round and get right to the real stuff? Well, there are actually quite a few reasons why using a demo account for a trading platform is a good idea. So, what are they?
- Of course, the biggest benefit of this type of practice trading is the fact that you get to test out a variety of trading platforms, thus allowing you to see which ones are functional and which ones are not. It’s all about being able to master the navigation and functions of a specific platform.
- Moreover, the fact that you get to test out trading itself is a big deal too. Not only will you get a good feel for what trading is all about, but you’ll also figure out what type of trading is best for you, whether swing trading or day trading, or maybe scalping too.
- It’s a great way to figure out what markets you want to trade on, whether the stock market, cryptocurrencies, commodities, Forex, or anything in between.
- Demo trading accounts are also great ways for people to test out a variety of trading strategies to see what works and what doesn’t all without having to risk real money.
Certain Risks & Drawbacks
For all of the pros and benefits that demo trading accounts come with, there are also some very real dangers that you need to be aware of as well. Let’s take a look at the some of the drawbacks of this kind of practice trading.
- One of the biggest drawbacks to demo trading is that you just don’t have any kind of emotional attachment to your money. So, you lose $10,000 on a demo trade, but of course, it’s not real money, so it doesn’t really hurt they way it should. With a real trading account, you will make corrections and change your strategy to stop losing, with a demo account, you might just reset everything and try again, all without making the necessary adjustments. This is a good way to develop bad trading habits.
- People tend to just spend far too much time demo trading, and this changes the way people react to winning and losing trades. You’re just not going to respond the same way if you lose fake money as opposed to real money. Of course, there is also the simple fact that you won’t make any money either.
- Another issue with demo trading is that you might not actually try to use any risk management strategies. If you don’t use risk management when practicing, you’ll probably forget to use it when trading with real money. If real money is not on the line, people are far less inclined to practice and develop good risk management strategies.
Demo Trading the Right Way – Crucial Tips
We want to finish things off by providing you with some of the most important tips that will allow you to practice all of your trading skills using a demo trading account without developing bad habits. Nobody says demo trading accounts are bad, but you do want to follow these tips in order to avoid the risks discussed above.
- You absolutely need to develop a trading plan, and this needs to be the same plan you will use for real and live trading. So, you need to figure out what your trading method and style is, what markets to trade, the timeframes to trade on, when to exit to take profit, when to exit to stop losses, and how to apply position sizing.
- You also definitely want to employ a solid routine, one that will allow you to check your charts, place trades, and keep track of them, all without interfering in your daily life. You could look for opportunities early in the morning, trade from morning until noon, and then spend the evening reviewing results.
- You should also base how long you engage in demo trading for on what type of trading you are engaging in. If you are day trading, which is a high frequency type of trading, then a month or two will do, but if you are practicing swing trading, you might want to use a demo account for 3 or 4 months. You need to practice for long enough until you have ironed out all of the wrinkles.
- All of that being said, the biggest tip here is to spend as little time as possible demo trading, just enough until you feel comfortable enough to start risking real money. This is the best way to figure out how you will react to both winning and losing money, and it’s the best way to build confidence. Remember, always start with very small investments, then once you start winning some trades, you can move up. Of course, you want to start real trading as soon as possible because it’s the only way to actually make money.
The Bottom Line on Demo Trading
The bottom line here is that you should definitely do some demo trading before risking real money, but that said, you do want to follow the tips that we have outlined here today, in order to avoid those risks and drawbacks that we discussed earlier.
If you need help day trading, and what you need is a comprehensive education, particularly on Forex trading, then the best place to be is the Income Mentor Box Day Trading Academy. At this time, the IMB Academy is the most comprehensive, user friendly, effective, and affordable Forex trading school out there.