I earned $2k in the demo, OMG. Should I celebrate this or not? Stop here, trading buddies; let’s see what happens in live trading!
What’s the matter, I hardly earned $5 per week in live trading? Why do traders earn low returns in live trading?
If you are curious to know the difference in the performance of both accounts, read this post.
Hopefully, you will get the right answer here: Why is Demo often better than live performance?
There are several reasons for better performance in demo accounts. Firstly, demo accounts offer larger capital; as a result, traders get more returns. Secondly, there is no slippage or requotes in the price execution of demo accounts. Finally, trader’s psychology is risk-free and stress-free when trading with virtual money.
The question may arise in your mind that if demos are so unrealistic, why experts recommend them. They are good educational tools for beginners who don’t want to risk their real money.
Let’s check out the 7 reasons for better performance in demo account:
7 Reasons Why Demo Performance Is Different from Real Account
When we say that demo and real money accounts are different, we can also guess the difference in performance.
Below are 7 key difference in trader’s performance when they are using demo and live trading platforms:
Demo Account Show Different Execution Than Live Trading
You may observe price re-quote in live trading frequently, but this factor is completely ignored in the demo.
Here, you will fill orders at a price displayed on the screen. In live trading, prices are subject to requote and slippage. So, it is uncommon for market orders to be filled in the expected price
Demo Accounts Offer More Capital Than Real Trading Accounts
When trading with a demo account, you are free to choose your capital. This amount is often a four or three-digit capital.
Trading with big capital means you will lose a low amount and you can retain your loss easily. However, it’s unrealistic in real money trading.
Trading Psychology of Demo and Live Trading Is Different
No fear, no hope, no greed in the demon account. You are stress-free when trading. In other words, your emotions are always under control.
But when you trade live money, your emotions change every moment. Greed and fear may overcome your trading psychology at any time.
Risk Management Role Is Different in Demo Vs. Real
In Demo, you are free of risk as you are not using your real money. You lose but you can’t get the sensation of losing real money.
So, you seldom care about losing factors. That’s why your risk management skills are totally different in both accounts.
Demo Traders Are Tempted to Overtrade
Demo traders are easily tempted to overtrade. They can even move 1000pips per day. This is the major drawback of this system.
But on a real account, they can’t overtrade easily. Professional traders even trade a fixed number of pips or exceed 5 trades per day.
Demo Trading Is Less Disciplined Than Real Trading
When newbies trade on the demo they are not sure about trading plans. They are actually testing different trading strategies to find out the rewarding one.
While you can’t test your trading plans in real trading as mistakes are not accepted. It can wipe off your account in a moment and you may not be able to trade again.
Traders Receive Higher Returns in Demo
Traders can easily receive higher returns in Demo accounts because of higher capital. They can overtrade and can trade aggressively.
They can use high leverage also because they know they are not going to risk real money.
Tips of Making Demo Trading More Realistic
How can you make demo accounts more realistic? When a trader enters in real-world of live money trading, he feels differently.
But you can not question the importance of demos as they help you to understand the trading basics.
There are several tips that you can follow when transitioning from a demo account to a real money account:
Be More Realistic in Your Assumptions
The demo account shows that your order is filled. But in the actual market, this may not happen.
To make it realistic, assume when placing a bid and offer that your order was not filled. Only assume that the order is filled when you.
Don’t Ignore Slippage.
On demo accounts, slippage is often ignored. To counter this, assume at least one cent slippage on high volume stock.
To be more realistic, assume higher slippage on a lower volume of volatile stock.
Trade with Same Capital
Always trade with the same amount of capital in the demo as you wish to trade in real.
In this way, you will get the experience close to reality, and you can compare the difference between both as well. In case demo accounts don’t allow this, you can trade only a fraction of demo account capital.
Assume you are using Real Money
Try to Pretend that you are using real money in the demo. Keep an eye on your emotions and how trades affect your state of mind.
You can give gifts to yourself when you win in the demo for encouragement and real sensation.
Focus On Discipline Rather Than Money
The best tip when trading with the demo is to focus on discipline. Your aim in the demo should not be to earn more and more profit. It’s easier to profit if you can’t enjoy this win as money is virtual, not real.
Is MT4 Demo accurate?
Not, all demo accounts of MT4 are accurate. Brokers rig some retail traders. But they are a good source of educating the basics of forex trading to newbies.
Can you make money on a demo account?
Making direct money on demo accounts is impossible. The good news is that many brokers offer contests on these demo accounts to earn real money. Some brokers shift this money as capital to your real trade money account.
How long should I trade the demo?
It all depends on how quickly you learn. The simple rule is to stay on demo until 6 months before moving to the real money account.
Some experts recommend working both on a demo and real money account at the same time. It’s highly dependent on a trader’s capabilities and skills.
It’s true that demo performance is good as compared to live performance. Both platforms are different in terms of execution and capital.
The main advantage of the demo is that you are stress-free and place an order happily without the fear of losing real money.
This makes you more profitable in your trade. Is this win real? No, not at all, you assume the real world of live trading every time when you are on demo to become a good trader.