What is the demo account and the importance of training in the unreal environment?
Beginners due to the fact that they do not have the necessary experience in the field of trading, are constantly facing the fear of losing their capital in this market. The demo account is developed for beginners who need to train trading and build their own strategy.
Since the demo account in Forex is an unreal trading account, the trader can trade with virtual and not real capital, so there is no fear of losing money in these types of accounts. The demo account is connected to a live trading platform, so like real forex accounts, supports real time data. Most forex brokers offer this type of trading account after registration.
Trading in a demo account means to experience without risking real money. The forex market is a risky and volatile market, and if a beginner with no trading experience enters this market with real capital, will be so risky. This account that provides the possibility of trading training in a virtual environment in such a way that the trader can easily learn how to trade and test trading and capital management strategies.
In order to understand the importance of training in the unreal account, imagine a pilot who after going through the stages of theoretical training, immediately settles in the cockpit of an airplane and intends to have a successful flight. Everything is accurate and correct on paper and all the flight instructions are understood by the beginner pilot except real flight experience at all. Needles to say how risky this pilot’s flight can be.
On the other hand, imagine another pilot who after passing the flight training theory course, takes full courses in a flight simulator beside an experienced pilot. In the flight simulator, the beginner pilot implements all the theoretical instructions learned and at the same time learns how to face all kinds of conditions and potential dangers without the risk of falling and losing own and carry passengers’ life. Without any shadow of doubt, when this pilot settles in the real cabin, can easily carry out all the steps and flight instructions and lead a real flight with the least risk of falling.
In the forex market, the demo account plays the role of a flight simulator in which the trader makes a transaction without the risk of losing money and after learning trade and capital management, trade in the real account can be begun with the least risk and stress.
Steps to register and create a demo account
In order to set up a demo account, it needs to choose appropriate broker. After visiting the broker’s website, there is usually a section called demo account where have to be completed the registration process. Since this type of account does not require real capital and deposits and any withdrawals, many brokers have made the registration and authentication procedures very easy and fast.
For example, in website of on ePlanet broker, it can be seen that there is a section called “Try a Demo” that users can click to complete the easy steps of registering this type of account.
After clicking on the “Try a Demo” as shown in the image below, a page will open where should be entered the details including username, email address, contact phone number and account password. After entering details, the username and password to login to the demo account, as well as the activation link, will be sent to entered mail address.
In the next step, in trading platform (for example in CTrader) and in the create new trading account section, as shown in the image below, the demo option should be selected and in the new window mail address and password should be entered. Now demo account is ready for trading.
Important points in training in demo account
When training on the demo account, note that the price data is real time so there is no difference between this type of account and the real account. Therefore, whatever results are gotten in the demo account, theoretically, the same results can be repeated in the real account.
Another important point that most traders pay less attention to is the practice of capital management in the demo account. Since there is no real capital in this type of account, most beginner traders use this type of account to test the trading strategy and the capital management training is often forgotten, so these traders when they enter to a real account, they have a weakness in the capital management sector and suffer from it. Therefore, while testing the trading strategy in the demo account, capital management should also be practiced.
In addition, despite the fact that the capital in the demo account is virtual, the trader must have the mental impression that this capital needs to be continuously grown at all times of practice. It is only with this kind of thinking that practicing on this type of account can be useful for successful trading on the real account.
Differences between a demo account and a real account in Forex
Despite the fact that the price data in the demo and real accounts are both in real time, due to the unreal nature of the demo account, there are differences between this type of account and the real ones that the most important of which are as follows:
- In the demo account all orders are executed, because there is no real person on the other side of the transactions needs who to provide the liquidity required to respond orders. For example, when 0.1 lot EURUSD is sold in the unreal account, there is no need for the presence of a real buyer to execute order. Therefore, sell order will be executed immediately and there is no need for liquidity in the market. While in real account, there must be a real buyer with enough liquidity in the market to execute sell order.
- Considering that there is no need for the opposite party to exist, in this type of account, all orders are executed quickly and immediately and there is no delay in this field but in the real account there is a possibility of delay in order executions
- Slippage in the demo account usually does not occur, because there is no second party to make trades. But in the real account, a difference between the entry and executed price may be occurred.
- The spread also usually remains constant in the demo account under different conditions but in the real accounts the spread increases in volatile moments or when it has low liquidity.
- It is possible that some side costs such as commission per transaction, swap, deposit fees, etc., may not be applied to the demo account which trader should also pay attention to.
Advantages of training in a demo account
In general, training and practicing forex trading in this type of account has significant advantages that the most important of which are as follows:
- Risk-free: in loss because of wrong decisions, real money won’t be at risk.
- Self-examination: working on a demo account allows you to identify all your shortcomings in market analysis, trading decisions and strategy.
- Emotional-free: real trading creates feelings of greed and fear which affect trader’s decisions. But in the demo account, due to the absence of these emotions, all decisions will be logical.
- Practice: A beginner gains experience in every part of the trading process, from preparing for a trading session to the final recording of profit or loss. If traders use a demo account, they learn how to use the software to trade real money, where pressing the wrong button doesn’t risk real capital.
- Confidence: practicing a strategy and growing the unreal account increases the confidence of the trader and gives confidence that similar results can happen in the real account as well.
