Although they frequently get advertised and mentioned in broker reviews, you might not have paid too much attention to demo trading accounts. For most rookie traders, however, demo accounts don’t get much attention beyond a brief thought when they are first signing up to a platform. Despite this, demo accounts are one of the most useful features that an online brokerage can offer. If used correctly, demo accounts could allow you to maximize any gains you make trading on the markets. But what are demo trading accounts?
Demo trading accounts arean updated version of ‘paper trading’—a technique where you write down entry and exit points for a particular stock, commodity, or currency, and see how your strategy plays out on the live markets, without having invested any real funds. Thattechnique allowed you to try your hand at following the live markets, as well as providing you with a risk-free environment to test out some trading strategies.
Paper-trading is very much a lost art these days because that approach has been replicated and updated for the modern age as trading has transitioned into a fully online environment. Paper-trading now finds its home in so-called ‘demo trading accounts’, which allow a would-be trader to try out strategies in a simulator that replicates market conditions in real-time.
But why would you use a demo trading account when you try your hand on the live markets, surely that is where all the best traders learn their trade?
Although you might think of them as a bit of a waste of time and only of relevance to novice traders, the reality is that no matter what your skill level, demo trading accounts have something to offer you. Although you should always read the broker reviews before you commit to a platform, demo trading accounts provide a great way to conduct your review of a platform without the need to risk any actual funds. From the safety of a demo trading account, you can try out all the various features of a platform without worrying about the risk of losing your own money. This is something that will benefit you regardless of whether you are a seasoned veteran or a novice trader new to the scene.
Additionally, demo trading accounts can also help both new and more experienced traders try out strategies in a risk-free environment. Demo trading accounts accurately replicate market conditions in real-time, providing you with a realistic environment in which to try out new forex trading strategies. Developing a new trading strategy can take weeks and will also involve a significant amount of trial and error to refine. Demo trading accounts allow you to do this in a realistic environment without the same level of risk as the open markets. For this reason, both newer and more experienced traders use demo trading accounts as a way of developing and testing new trading strategies.