How Demo Trading Differs to Real Trading
Anyone who is thinking about trading in the Stock or Forex markets but who feels a little nervous about it will usually start out by trading with some kind of demo account offered to them by an online broker.
While demo accounts can be very useful to help you learn how to use the trading platform and read all of the technical information correctly etc., it is important to remember that the results you achieve using a demo account might not mirror exactly the results you will achieve in a real live trading session when using your own money, why?
It’s not real money
It may sound obvious but the main reason why your demo trading habits will likely differ from your habits during live trading is because it is not real money that you are using. What sort of trading habits are we talking about here?
Attitude to risk
It is amazing how people’s trading behaviour can change when real money becomes involved. When using a demo account some newbie traders will be overly brave, placing risky bets knowing that if it all goes wrong then they are not going to lose any of their own money. Sometimes these risky trades will pay off, giving you a huge return. But is this likely to happen in real live trading? Often times it doesn’t work quite this way because a trader’s attitude to risk understandably changes when real money comes into play. As we’ve said, it is amazing how many newbie traders go from being a risky and frequent trader when using a demo account, to instead finding it difficult to find the confidence to make any real trades at all once their own money becomes involved.
Nerves of Steel
Then there is the aspect of holding your nerve. When using a demo account it is quite easy to watch your trades go against you for a while and remain patient until they recover to a point where you can still close out with a profit. Again, when real money comes into play many new traders will go from having nerves of steel to instead being a nervous wreck, closing out of each and every trade as soon as the market starts to turn against them, making it very difficult to make a good return on any of their trades. Fear and an inability to hold your nerve will be one of the biggest differences between real trading and demo trading and this one factor alone will play a big part in separating out those who will have a chance at being a successful trader from those who will not.
Switching off from the markets
When using a demo account it can be very easy to place a trade, walk away and forget about it for a while, checking back in later on to see how things are going. For many people this behaviour pattern will completely change when they start trading with their own money. It’s not easy to walk away and forget about the market when you are risking your own cash, especially when you are trading in markets that can turn against you quite quickly and severely.
Everyone is different
Here we’ve mentioned just a few reasons why demo account trading can be so different to trading with real money. Of course, these factors will not affect everybody in the same way and it is possible that your demo trading results will mirror your real results quite closely. For most people though, real trading will present a completely different challenge and as good as demo accounts offered by online brokers are for helping you to learn the ropes, it should not come as a surprise to you if your trading habits and returns change completely once your own money is brought into the mix.