The benefits of trading a demo account

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  • Forward testing your strategy :
    After you have made up your mind about what and how you are going to trade, there are 2 options, backtesting and forwardtesting. The benefits of backtesting is that you gather a lot of data about your trading plan in a short amount of time. The drawback however is that there is very little involvement or emotion in it. In hindsight it's easy to see if your plan would have worked or not, but how would you have reacted while in a trade.
    That's where forward testing comes in. Admitted it takes a lot more time to get confirmation of your trading plan, but you get the feeling that you are really trading, including the emotions (if you take it seriously).

  • Learn from your mistakes :
    While forward testing on a demo account you will make mistakes like entering trades early, overtrading (too many trades), cutting profits short, being biased about direction etc ... All kinds of mistakes you make at the beginning of your trading career which will cost you a lot if you're not on your demo account. Make those mistakes and learn from them, eliminate your mistakes one by one while on a demo !

  • Fine-tune your trading plan :
    Once most of your mistakes have been ruled out, you can really start to see the potential of your trading plan. Is it profitable ? Does it meet your expectations ? While on a demo account you can tweak it or even go back to the drawing board, it does not cost you anything except some effort.

  • Deal with drawdowns :
    No matter how good your trading plan, eventually you will have to deal with a drawdown, days or even weeks that the market seems to turn against you. This is an awful experience but it's something we have to learn to deal with. Perfect opportunity to stick to your plan and gain confidence, eventually trade smaller position sizes until things start to work out again.

All reasons above are why I suggest trading on a demo account for a longer period of time before trading live. There are a couple of things to keep in mind though if you want it to work :

  • treat your demo account as if it were real money, set your starting equity of your demo to the amount that you would start your live trading account with
  • live the emotions of trading and learn to control them
  • take your demo account seriously, follow your plan, use risk, money and position size management
  • learn from your mistakes and gain complete confidence in your trading plan

Conclusion :
Yes, demo trading is and always is trading with virtual money, however the reality factor depends highly on yourself and how you consider it. Treat your demo account as if it was real money, follow your trading plan and gain confidence that it works (if it doesn’t go back to the drawing board). That, for me, is the best possible preparation before spending any money in the market.

One last thing : don't feel bad about the money that you would potentially have won if you were trading live, I'm sure you would feel a lot worse about the money that you would have lost. Trade your demo account as long as it takes, don't be in a rush to loose money.

What's your view on trading demo ? Do you think it's beneficial ? Leave your comments below !
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hi. how to open a demo account on tradingview ?thanks
Hello everyone! have a question. I opened a account on CQG now I have a demo account wich I wanted to use in tradingview but it says I need to contact my FCM. What does this mean?
+1 Reply
Where do you find the existing/current balance at? The record of your trades.... you open trades and trade history? I must be the only one confused about this as I see no other comments on this. It's not meta Trader 4 :)
Does anyone have any recommendations as to which are the most popular (good place to start) platforms that offer a demo trading account for forex?
Personally I feel that using a demo acct should only be used to get to know your way around the platform & learn how to use it. Or If you want to back test or forward test some methods. But if you do decide to continue trading on demo fund it with only the amount of capital that you would be funding a live acct with. But I feel the sooner you get off of a demo acct the better. Even if you just start trading a mico acct with .01 lots or even a nano acct trading a penny a pip is going to help you to become familiar with the real emotions of trading a live acct. The sooner you put some skin in the game the better. JMHO.
+2 Reply
I agree that the size of your demo account should be similar to what you plan on starting your live account with. As far as the "probing" is concerned with a live account and minimal trades, I'm not sure if it is such a good idea ... If you trade such minimal amounts, the losses are very limited as well and the emotions tend to be minimized as well. At least that's how I would react to it, I see more benefit in trading on a demo account with the real size positions to get a good feeling about how live trading would go. But then again, I take the demo trading very seriously as if it was real money.
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