What is a Demo Account?
Demo Account is an account which you can trade with simulating money. It is digital money that has no real value but offers an opportunity for you to trade with no risk. Trading with demo account in a trading platform like MT4 and MT5 will let you know how this trading platform works. Plus, you can try your trading strategy without risking your own precious fund.
How does a demo account work?
There are many kinds of account type that brokers provide. Among those accounts, demo account would be an option for you to choose. After creating a demo account, you will have simulated money in the trading platform like MT4 and MT5.
Within the trading platform, you can start trading with zero risks. First and foremost, you have to which financial instrument you want to trade. After choosing an instrument, you can either long or short the position.
The trade you executed with demo accounts does not deduct the spread and commission. Thus, the performance with a demo account and real account may vary. Plus, the orders placed by the demo account does not influence the real market.
What can demo account do?
Demo accounts basically have the same function as a real account. The only difference is that the fund is not real money. Here are things what you can do with both demo and real accounts.
- If you are a beginner in trading, we strongly recommend you to first try with a demo account. You may start with opening and closing positions and try different order types like limit and market orders.
- Considering the margin rate of the broker and instrument, you can experiment how leverage works. This may give you an idea which accounts to open base on your fund size and margin.
- The experimenting in the different financial market will let you understand how they work and choose which one is appropriate for you.
2. Technical Analysis
- Charts are available for both demo and real account. All the indicators are implemented in the trading platform, and you are free to use them
- Try how the charts work and use the simple analytic tools like moving average and MACD.
- You can practice and get an idea of which strategy you can use.
3. Backtesting and experiment your EA.
- Charts reflect the price of the market, and the past data are available in the trading platform for free.
- You can go through the price a week ago or even years ago and simulate your strategy.
- If you have purchased an EA(Expert Advisor) in the marketplace and backtest or operate it with the real fund, backtesting is necessary.
- All the past data is already implemented, or you can download the data within a few clicks. Demo accounts also enable you to backtest and data for free.
Why should we use the demo account?
There are several reasons why we should first try the demo account, especially if you are a beginner.
1. No Risk
- Since demo accounts are not real money, losing trades won’t let you lose the real fund. This allows you to practice multiple ideas and expert advisors with zero risks.
- Experience is the second-best teacher(or the best) when you are learning and knowledge. Practising various asset classes will give you an idea of how these work.
3. Choosing a Broker
- The brokers provide demo accounts. Trying the demo account of brokers would be the most cost-efficient method to choose which broker you would like to use.
- You can try the speed of placing an order, different kinds of charts and indicators. Then evaluate the overall quality of the account and the trading platform to determine which one is suitable for you.
4. Testing Strategy
- A demo account is an amazing place for you to tune your trading strategy with no costs. You are free to make mistakes, and it may enhance your trading skill.
- Backtesting would be a great option for you to try the strategy you have developed or an EA you bought in the marketplace. Within a short period of time, you can know the profit rate, winning rate, profit factor, maximum drawdown and more! If you think it is verified with a demo account, a real fund would be a great choice!
1. Trading Cost
- Trading with demo account does not take into account the trading cost. The trading cost can be spread or commission or slippage.
- These are the major factors that eat up all the profit rate we could have earned; Demo accounts do not reflect these elements and often perform better than real trading.
- You may feel very comfortable trading with a demo account since you won’t lose any real money.
- But, once you start trading with the real fund, you can get nervous and anxious, which may influence your trading performance. Starting with a small amount of fund is recommended if this is the case for you.
- There will be no deal rejection with demo accounts.
- But, with live trading, there are brokers which re-quotes or with trade against you. Be aware of which broker you are using!
4. Price Movements
- Demo accounts may not consider dividend adjustments and interest rate.
- Therefore, the price you are trading could be different from the real price.
How to open a Demo Account?
It is straightforward to open a demo account. Each Forex/CFD brokers offer demo accounts for all users. All you need to do is make an account with an email address and create a demo account in the brokers’ dashboard.
After creating a demo account, you have to download a trading platform that is offered by the broker. There are trading platforms like MetaTrader4, Metatrader5 and cTrader to choose. After deciding which trading platform to use, you can log-in with the demo account you have just registered.
You might not be familiar in the first place, but after you use to it, it would be super easy.
Are MT4 and MT5 demo account good?
Metatrader 4 and 5 is the industry standard trading platform that millions of users are using worldwide. It is simple to use and offers a various number of functions that you may found useful.
These trading platforms offer the same function as the live account, So, trading with a demo account with mt4 and mt5 would be a good option for you to start the trading journey.
Demo Account to Live Account
If you have decided to trade with a live account, here are some steps you can do.
1.Prepare some fund you want to trade with.
- Starting with £300 to £500 would be reasonable.
- Since trading is risky, try with the smaller fund.
2.Open a live account within the broker.
- You can use the same or different broker as your demo account.
- Choose an account type which suits you and register to get started!
3.Decide which instrument you would like to try.
- There are many asset classes in the financial market like forex, CFDs on stocks, commodities and crypto.
- Starting with the instrument you are familiar with is a great choice.
4.Use the strategy and tactic you have decided.
- It is a MUST to prepare a strategy to tactic you want to use.
- Or else, you might not know what you are doing.
5.Now, enjoy your trading!
- Lastly, you can place an order and start trading!
- Remember capital management like stop-loss and betting a small portion of the fund are necessary!
A demo account will help you to understand how trading forex and CFDs work.
Sometimes trying once is much better than reading 1000times.
You will save time and money for testing these platforms and your strategy,
This is useful for both beginner and advanced traders.
There are limitations with using demo accounts as well.
The performance, price and other factors might be different.
Overall, it is a great idea to use a demo account to decide which brokers or trading platforms to use.
Meanwhile, you can backtest and forward trading your trading strategy and EA.