Is trading on a demo account useful?
Many brokers today provide traders with the option of using a demo account. A demo account is the demo version of the trading platform and allows the trader to open, monitor and close positions here. He can study the features of the trading platform and check how extensive the trading offer actually is. Depending on the broker, the demo account is provided free of charge and without specifications.
However, with some brokers it is also necessary to first open a general account, make a minimum deposit and then use the demo account. Originally, this offer was intended for traders who have not yet gained any trading experience. However, more and more professional traders also like to take advantage of this offer, as it allows them to work out their strategies and test their functionality.
But is trading on a demo account really useful? This question is likely to arise more often. Especially when traders are successful with their positions, there is a lot of frustration that profits are not recorded on the account as real money. Basically, it is advisable to consider the advantages and disadvantages of a demo account and then decide whether to take advantage of it.
One of the biggest advantages of a demo account is that it is free of charge and can be used even without a credit balance. So if you want to know first of all whether trading is interesting for you at all, how well the trading platform is set up and which tools are offered, you should benefit from a demo account. The amount of the available virtual credit varies from broker to broker. However, it has been shown time and again that direct contact with the broker can be helpful to replenish the credit balance, even if it is completely used up.
The danger of loss should not be underestimated when trading online. Frequently, large amounts of money change hands and the trader does not always emerge as the winner. This can be very frustrating and also threaten entire existences. Especially beginners often underestimate the risks and the effort. With the help of a demo account you can find out more quickly how trading works and how important risk management really is.
Risk management is an important term in this context. One part of risk management is a trading strategy. However, developing a strategy takes time and is characterized by ups and downs. Losses are not uncommon. If the strategy is worked out on a demo account, losses are secondary. Instead, traders quickly determine where the strategy needs to be adjusted. For this reason, even more and more professional traders are turning to a demo account when it is offered.
The topic “trading platform” should also be taken up in this context. The trading platform is the basis on which trading can be conducted at all. There are variants that are used by different brokers. But there are also solutions that the broker himself develops. Traders must be well versed and comfortable with the trading platform in order to be able to trade successfully. However, it does not only cost time to get acquainted with the platform. Financial losses can also occur. If a trader opens a position and does not yet know how to use the tools and also the possibilities for hedging his positions, losses are not uncommon.
But are there also disadvantages with a demo account? As a matter of fact there are. For example, many brokers limit their demo account both in terms of time and the virtual balance they provide. This is on the one hand understandable. If traders only work with the demo version, the broker earns nothing from it. He wants money to be invested and provides the demo account only for the entry. However, this can be a big disadvantage for the trader, especially if he does not find enough time for the testing process during the runtime or would like to develop new strategies over time and can no longer access the demo version.
A particularly important disadvantage, however, is that a demo account does not put any pressure on the trader. What sounds positive at first, however, is a real problem for trading behavior. Every trader reacts differently when under pressure. Maybe he acts rashly and changes the positions too quickly. Or maybe he waits too long and does not react in time. With a demo account this is usually difficult to find out because there is no financial pressure. You can wait in peace and quiet to see what happens. But it is also not so bad if the trader constantly changes the positions. It is therefore not necessarily possible to learn about one’s own trading behavior through a demo account.
Important: A good demo account is preferably not limited in its duration and also makes it possible to recharge the virtual credit again and again. In addition, it should reproduce trading with real money in detail and provide full access to the trading instruments and tools. The display of values in real time is also an important factor. A comparison of the demo accounts of different providers helps to get an overview and to find the right solution for trading.
So should traders start trading on a demo account? Even though there are some disadvantages that are often underestimated, using a demo account makes sense and should be considered. The trader has nothing to lose at first. It is important for him to observe himself. How do I deal with trading? Am I making progress? Do I also test different possibilities? In a demo account, positions should be selected in a way that the trader might not have done with the real money version. This is the only way to break new ground.
In addition, the switch to the live account should not be missed. The goal of a demo version is to give the trader a certain amount of security. He should feel comfortable with regard to the prices, the selection of positions and also the decision for the use and leverage. Those who feel secure in a demo account and also achieve success can open the first positions in a live account and check how they develop.