A demo account allows traders to familiarize themselves with a trading platform and practice their skills and strategies in a real environment. Since demo accounts use virtual currency instead of real money, traders can use these accounts without taking any financial risk. Novice traders and even advanced traders can benefit from these accounts for several reasons, but there are disadvantages as well. Below we will discuss the advantages and disadvantages of demo accounts.
Benefits of Demo Account
Demo accounts are very useful for practicing. You can take more risks than in a real account and more experienced traders can even use them to practice different strategies. Beginners can track their progress and get a better idea of when they are ready to make a real investment. You can do all the research you want, but nothing is as convenient as trading on a demo account.
They are free. Most forex brokers offer demo accounts and opening such an account should never cost anything. The reason brokers offer these free services is that they want their potential clients to come to the market better prepared. Traders are less likely to blow their accounts and give up quickly if they have some hands-on experience. You are also more likely to open a real account through the same broker that provided you with your demo account, which helps companies gain future clients.
You can use them to practice different strategies. The internet is full of information about different types of trading strategies . Some traders prefer scalping, others swing trading, and there are a whole host of other options. You may read an article or watch a video about a strategy you've never tried and think it looks promising. A demo account is useful in this situation because you can test out the new strategy without risking real money.
Opening a demo account is quick and easy. The process of opening a demo account is straightforward. Brokers do not ask for as much information as if one opened a real account. Most ask for your name, email address, and possibly your country. Occasionally you may need to provide a phone number, but not always. You can complete an account opening form and receive your login information in minutes.
You can use them to test indicators. An indicator signals the best times to enter the market and is useful when used correctly. Some indicators are available for free, but many providers may require you to pay for them. The problem is that you never know for sure if the indicator is going to perform effectively, as many of them can emit false signals or have other flaws. This is why most traders test promising indicators on demo accounts to see if they are worth investing in.
Demo accounts rarely expire. Most forex brokers allow you to use the demo account indefinitely. From time to time, a broker may set an expiration date of 30 days or cut off access to this account after a certain number of days of inactivity. If you contact support, many brokers will allow you to continue using the same account. If not, you can always open a new demo account for free in minutes, so you can practice for as long as you want without having to open a live account if you're not ready.
Disadvantages of demo account
Demo accounts do not prepare traders for the emotions of live trading. When real money is at stake, one can get overly emotional. If you lose big, you might blame yourself. If you win, you may feel excited, which can lead to further trading problems. The psychology of trading is a whole different matter in itself, but it is important to know that demo accounts cannot prepare you for these feelings because real money is not at stake. These emotions can come as a shock. for traders who do not expect it. ( The psychological differences between demo and real trading )
Demo accounts do not experience lags or slippages. On a live account, traders may see slippages during times of high market volatility or when important finance-related news emerges. Slow internet connections can also lead to requote issues. Everything happens faster on a demo account, so traders may not realize these issues that may arise once they upgrade to a live account.
You might get used to using a demo account. Some traders never switch to a live account for any reason, even with good trading results on a demo account. Maybe they lose interest in trading or don't want to make a real investment. The problem is that some traders get too comfortable on the demo account and continue to trade on it for an extended period of time. If these traders ever open a live account, they will be more relaxed due to their new expectations.
Traders manage risk differently on a demo account. Sure, you can take your results seriously, but you won't always make the same moves when it comes to real money. What seems like a good decision on a demo account may seem too risky if real money is at stake. This can alter a person's perception and change their results on a real account. Another downside is that many demo accounts start with an unrealistic amount of money, which also changes the way you trade.
Demo accounts offer several obvious advantages. You can sign up easily through most brokers without paying a penny. Accounts can be used to familiarize yourself with trading in the forex market and to practice using different strategies, leverages, account types, indicators, etc. However, demo accounts have some less well-known dangers. Traders don't feel the same raw emotions or fear losing money in the same way when they know real money is not