Demo, demo and demo! Why does everyone recommend DEMO FIRST in trading? Why Can’t you directly jump to a real money account? What are the potential benefits of staying on a Demo account?
If you are a newbie such questions may pop up in your mind. Read this post now and get the answer to all of your confusions. Let’s get started with the difference between Forex Demo and Real Account.
Forex Demo Account is basically designed to train and educate beginners. It is different from a real money account in many aspects. The profit and loss in the demo are not real as compared to the live trading account. Similarly, the spread, price feed, trading psychology of both accounts are entirely different.
Expert traders recommend beginners to stay on a demo account for at least 6 months before switching to a real money account. Let’s see in detail the trade-related and excursion related difference between both accounts.
What Is Forex Demo Account
Demo Account is a free trial account that allows traders to practise trading with fake money. It is specially designed for newbies who want to learn to trade.
That’s why the demo account is essential to educate yourself about trading practically.
In addition to this, it offers you a free platform to practice your trading strategies in a risk-free environment. Almost all brokers offer demo accounts on all platforms.
This service is amazing for beginners who want to practice trading skills while saving their investment. This demo account help traders to learn the basics and advanced features of the forex market
What Is Real Account
Real account means live or real money account in this account you deposit real money for trading and earn profit in the form of real money. Whatever you may lose or earn, it is all real in this account.
Almost all brokers offer real money accounts. To open an account, you need validation or verification. Some brokers may ask you to submit identity proof, address or other related documents.
While some brokers go on without verifying the account. It’s better to open a real money account to brokers who validate them.
The trading environment of a real money account is totally different from a demo account where you use virtual money.
Almost all the broker provide demo and real account platform. When you are choosing any broker make sure it’s a regulated broker. We found this Broker is regulated and low spread
Demo Account Vs Real Account: 5 Key Trade-Related Difference
When we talk about ways to trade, it’s different for demos and real money accounts. Below are 5 key trade-related differences that traders should know before trading:
Trading Psychology Is Different
Trading psychology is an important factor when trading. It depends on your mental condition as well as the trading environment. When you are trading with virtual money, you are stress-free. You need not worry about profit and loss.
On the other hand fear and greed overcome trading psychology and risk management when you are using a real money account. So real money accounts are more stressful as compared to demo accounts.
Trading Strategies Are Different
You know you will lose nothing when trading with a real money account. So you will try different strategies to test which one suits your trading style.
In the end, you will come up with one strategy to follow in a real training account.
On the other hand, you can’t test different strategies in the demo account. If you do so, your account will wipe off. You have to stick to one trading strategy when you are trading with real money.
Overtrade/Number Of trades per day is different
You can trade as many pips as you can in the demo account. You can even cross more than 100 pips per day using different EMAs.
However, on a real money account, you have to think about capital leverage and other factors when overtaking. Most day traders don’t open more than 5 trades per month.
Performance of traders is different
When strategy, psychology and the number of trades are different in both, how can performance be the same? Your profit ratio in the demo account is always higher than in a real money account. Because you can overtrade and set a high-risk reward ratio.
On the contrary, real money trading is bound to limited profit. You can make a profit according to your skills, capitals, and risk mitigation ability
Targets are different
In the demo account, traders often don’t set any specific profit targets. They know they are free to trade, free to lose and free to earn. So, they hardly set any target when to stop the trade.
In contrast, a real-money account needs a proper target setting. Traders are fully aware of when to enter into a trade when to quit. They set specific average profit-making goals.
Demo Account Vs Trading Account: 5 Execution Related Difference
A demo account is indeed similar to a real money account in many aspects. But still, there is much subtle difference in the execution of both.
Let’s know about these execution-related difference:
Requote Price Difference
This is one of the major execution differences between both accounts. In demo accounts, brokers may never requote prices the reason is that demo accounts don’t have direct access to the interbank.
While requoting is frequent in real money accounts. This happens when the market is moving fast and your broker is not able to execute your order at a specifics price.
Broker’s spread is different in both accounts. In demo accounts, traders deal with spread and price feed mechanisms differently. They generally have a static spread.
For example, traders may have a tighter spread in a demo account when dealing with 1 pip as compared to a real money account, where it is a variable spread.
In real money account spread may widen within a certain period of liquidity and volatility. Somes broker does evil practice to make more profit with spread manipulation.
Liquidity Level Difference
It is difficult to determine the market impact in the demo account. The current market situations are important to know if you want to get familiar with any changes in a price move.
Certain events like announcements and news feed can have a significant impact on the market situation. This helps to determine liquidity in the market.
In the demo account, traders hardly come to know the reasons behind the liquidity factor. But in real money accounts, traders try to stay updated about current market situations.
Stop Loss Order Execution Difference
In the demo account broker may execute a stop-loss order as you set it. But in a real-money account, your broker may delay your stop-loss through slippage.
They can reduce the speed of the server to execute stop-loss certainly lower to the point where you actually want to put it.
This way they are found the culprit of causing slippage and some time your broker wants you to lose your balance.
Broker’s Error Execution Difference
You know well about how brokers manipulate prices. They create artificial slippage or spikes in the market They often change the price feed to make you lose. In the demo account, you may not be able to learn this hidden broker’s trick
But in a real-money account, you will tend to lose money if you are unaware of the broker’s manipulation. So, this broker related aspect is always hidden from demo account platforms.
Benefits of Demo Account
Now you might be thinking if there are so many drawbacks of a demo account then why do we need it? The reason is that there are so many benefits also to counter the drawbacks.
Let’s see what are the potential advantages of dem accounts:
- Demo Accounts help you to get familiar with trading charts, price feed and many other features of trading
- Demo account helps you to know about the trading platform you may choose for trading in depth.
- This account helps you to understand different types of orders in the forex market. This includes buy stops, sell stops, buy limits, sell limits, OCO and trailing stops.
- This account helps you to test a particular trading system.
Without risking a single penny, you can understand the basics of the trading system.
Editor’s Tip: Never Stay on a demo account for long. It’s better to deposit a small amount in a real money account and work on both virtual and real money to learn and test strategies.
Are forex demo accounts accurate?
No, demo accounts are not accurate every time. The main purpose of demo account creation is to test and practice your trading strategies. T
hey are risk-free static spread accounts. In a real scenario, it is hard to achieve the psychology and benefits of demo account trading.
Is the demo account the same as the real money account?
No, they are entirely different. The price feed, spread and newsfeed market impact of a demo account is different from a real money account. Even bid and ask prices is also different in both.
Are forex demo accounts rigged?
You can’t say this about all broker’s demo accounts. Certainly, many brokers are there who offer rigged demo accounts. Slippage and change in price feed are a part of real money trading. But few brokers do so not all.
Despite so many differences between demo and real account, they are a good way to learn for beginners. They can start their trading journey without risking real money.
Indeed, demo accounts don’t provide real emotional commitments as live trading accounts do.
However, you can’t underestimate the importance of demo accounts. They are the best educating tools. It would be funny to make 1000 dollar in your dream and enjoy the happiness of having none in reality.
But they are motivating and soon they will make you switch to a live trading account. They are just like addiction. Once you are addicted, you will never stop yourself from getting real trading experience. Bye for now!