A demo account is basically a practice account, or trading simulator, that allows you to practice day trading with a wide range of financial instruments, from stocks, currency pairs and options to CFDs and cryptos.
Demo accounts use fake "virtual" money, allowing you to gain trading experience without risking real money. This allows you to develop trading strategies and gain confidence while familiarising yourself with the markets. It's also an effective way to test a potential broker and software.
The best demo accounts allow you to simulate real trading, with the only difference being that you'll be using fake risk-free money. This way you get a full experience of the markets and the trading platform without the pressure of risking your money.
Training
Strategy
Overall, the beneft of a demo account is that you can test a broker's platform and your strategy with 0 risk.
Gaps with an actual trading environment
Psychological divergences
In conclusion, comparing a demo account with live trading highlights a number of potential pitfalls to consider.
This doesn't mean that you shouldn't use demo accounts. It just means that you should be aware of the above-mentioned risks, so that you're prepared for the differences when you start trading with real money.
When you strive to become a trader, the first thing you do is open a demo account. Of course, since you want to succeed and make real money, why stop at the demo stage?
But the following feelings are common: the fear of losing real money and the doubt that you could actually turn into a profitable trader. So allow us to guide you through your transition to a successful trader, with an easy to understand 4 step plan:
Demo account to real account: Our action plan
You already know how to trade since you've done so on a demo account. We'll therefore develop each point in detail;
Allocate capital
You need to set aside some capital. The amount is up to you, but a reasonable minimum is £300-£600, as a lower amount limits the number of trades you can make.
Trading is a high-risk activity, so you should be prepared to lose some or all of that money. If the minimum deposit at a broker is less than what you have, you don't need to put it all in - just set it aside.
Open a real money account
You don't have to use the same broker that you demo traded with, but this transition will be the easiest one to make. Visit other brokers' websites if you want to try someone new for the real account.
Calculate a trade size
How much are you going to risk on each trade? 1% to 2% is a conservative number.
If you make 40-75 trades, you'll be in a good position to know if you have what it takes to become a profitable trader.
If you do less than that, you won't know if the results are due to luck. 75 trades is where you can truly separate winners from "unprofitable" traders.
Start trading!
Congratulations, you're a trader! But, are you a winner?
Most demo accounts are easy to open. Most of the time, you just need to go to the broker's website and fill out a basic form.
You'll also typically be asked for:
It's as simple as that. Your account login details will then be emailed to you and you'll receive instructions on the next steps.
Brokers | Platforms | Expiration | Trading instruments | Broker review | Open a demo account |
---|---|---|---|---|---|
MetaTrader 4 and 5 | Unlimited | CFD account: commodities, cryptos, stocks, currencies, indices, ETFs, bonds | Admiral | ||
MetaTrader 4 and 5, AvaOptions |
21 days | CFD account: commodities, cryptos, stocks, currencies, indices, ETFs, bonds, vanilla options | AvaTrade | ||
MetaTrader 4 and 5 | Unlimited | CFD account: commodities, stocks, currencies, indices | XM | ||
xStation 5 | 30 days | Stock account: stocks CFD account: commodities, cryptos, stocks, currencies, indices, ETFs, bonds |
XTB | ||
CFD trading comes with a high risk of losing money, it is therefore not suitable for all investors. |
The most popular trading platform is MetaTrader (MT4 or MT5). It's an industry standard available with most brokers.
Once you've downloaded MetaTrader, you'll be able to analyse the markets using a series of technical indicators, without risking any capital. This will allow you to practice analysing price action, charts, support and resistance lines, currency correlations, and more.
MetaTrader demo accounts can be opened on a desktop platform, as well as on mobile applications. Both will also allow you to test automated strategies using historical data to optimise your settings.
Once you have your MetaTrader account password, you can practice all of the above until your demo account expires. However, you will find many brokers offering demo accounts that don't expire if they remain active.
This means you'll benefit from live quotes from all markets, as well as a virtual portfolio, which allows you to practice in real market conditions for as long as you want.
You also benefit from diversity. So, you can choose between demo accounts for forex and gold trading, to name but a few.
In fact, since demo accounts usually have no time limit, you can try your luck in as many markets as you want, until you find the asset category that suits your trading style. Demo accounts are the perfect, risk-free way to identify your strengths and the areas of your trading plan that need attention.
You don't have to risk real money right away. You'll find many free demo accounts for day trading, whether for cryptos, currency pairs or stocks.
Overall, demo accounts offer a host of benefits, whether it's refining a strategy or learning about markets you're not familiar with.
However, they have certain limits, whether it's dealing with various emotions or identifying a need for a more effective risk management strategy.
But whether or not you're convinced that using a demo account is useful, it's still an effective way to test out a potential broker and its platform.
Forex Tester trading simulation software offers a free version with limited features: