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All You Need To Know About Demo Account Trading
Alex

LEVEL 10 : SENIOR

REVIEWS 9 | REPLIES 84

#2143

Alex

September 17, 2015 at 3:12 pm

Some traders swear by Demo Trading and others believe that it is a total waste of time. These traders believe that demo accounts will cause beginners to learn how to trade without the right discipline. This is due to the fact that people know they are trading with demo money, so they don’t really care if they lose it. This feeling will cause traders to take random trades while there is no valid setup. The other thing they believe demo accounts do is cause traders to overtrade or trade with larger positions than what they should. So according to them, they believe that all these actions will become a habit for you and result in failure when trying to trade with real money.

Do I agree with them? I sure do, but only if you are not a serious learner and only looking to fool around with some trades to see how it works. However, if you choose to be serious about becoming a professional trader and making a living from trading, then you should behave in an entirely different manner. Before you even start demo trading, you should first acquire all the necessary knowledge about trading. Learn all the different trading terms, how Binary Options work and what it is really about. Only after you think you have enough knowledge, you can finally open your demo account. Should you decide to open and start trading your demo account while you are still not ready, you will only get confused, disappointed and frustrated.

How Does A Demo Account Work?

Most people prefer to use the term “virtual” accounts instead of “demo” accounts. Demo/Virtual accounts basically mimics a real live trading account, but just with fake money. You are still trading real market prices with actual expiry times without the associated risk.

Free Binary Options Demo Accounts can be hard to come by these days. So what else can you do? It’s called “paper trading.” It is precisely as the name states. Yes, it is old school but works just as well as a typical demo account. So what you do is, you take a piece of paper and pen, go sit in front of your live charts and start looking for opportunities. When you see a trade according to your chosen strategy, write it down. You should include the following information:

  • the asset that you traded,
  • entry price and time,
  • expiry time,
  • the amount you risked on the trade,
  • account balance before the trade,
  • was it a call or put,
  • expiry price,
  • did the trade win or lose,
  • new account balance after the trade.

Once you have a format it actually becomes quite easy to do it this way. You can also adapt your paper trading to other types of binary options trades, like Boundary and Touch/No Touch Options. You have to be super quick if you want to use paper trading with 60-second options, though. Rather leave them for the Trading Simulator – more on that later…

Why You Should Use A Demo Account

A demo account lets you practice the things you learned from reading books or articles, visiting trading forums, watching videos and attending seminars. You should see it as a practice ground for the live trading. Let’s take a gymnast for instance – he/she will practice and practice until they get their routine right. They will only sign up for a tournament if they feel they are ready. This does not mean that they will get everything right what they practiced, but their chances of a high score are much better than what it would have been without the practice.

During your demo trading time, you should first get accustomed to the binary options platform. Learn where all the buttons and stuff are. After this, you must choose your trading strategy. To do this, you need to do the following:

  • Use different timeframes to see which timeframe best suits you and your trading style. (1m, 5m, 15, 30m, 1h, 4h, etc.)
  • Play around with different market conditions to find the best market for your chosen strategy. (trending, ranging or choppy)
  • Choose different expiry times to find out which one works the best with your trading strategy. (60sec, 5min, 15min, 30min, 1 hour, etc.)
  • After you have decided on a trading strategy, you should implement different money management strategies. Your money management will have an enormous effect on your psychology and also your profitability, so be sure you make the right choice. I would recommend staying away from any martingale systems. Martingale will only end in disaster in the long run.

The whole idea behind a demo account is to go through the same processes that you will go through when you are making a real trade. Once you have found your preferred trading strategy, practice it as many times as you can. When you finally make a trade on your real account, you will have enough experience and all the technical skills needed to carry out the trade.

Demo Trading The Right Way

Not the left way, the right way! Let us get into more detail on how you should use your demo account to do this.

1. Demo Account Size

I know it feels great to trade with a big juicy demo account and to see all those massive profits that you can make, but in reality this might not be such a good idea. Your demo account has to be the same size as your live account would be. If you are thinking of opening a $2000 live account, then you should also open a $2000 demo. Doing this will help you to take your demo account serious. Do not be one of those silly traders that goes and opens a $100 000 account. Doing this won’t mean anything to you. Remember that opening a demo account is free, but if you think about it, it actually isn’t. You are spending your valuable time on it to build your experience and discipline. I’m sure you have heard the term “time is money”.

2. Take Your Demo Account Serious

You should treat your demo account as if it was a real account. You should forget that it is only demo money you are trading with, and nothing will happen if you lose it. Would you like if you lost your real money? No, so don’t lose your demo money. You will blow up your live account just as easy as you blow up your demo account if you don’t treat it seriously. The same mistakes you make in your demo will be carried over to your live trading account. Take care of your demo money, wait for the best setups, do not over trade, and you will build the necessary discipline and experience to be able to trade on a live account.

3. Wait Before You Open A Live Account

Don’t think because you make money the first week trading on a demo, that you should switch over to a live account. If you are not able to repeat your success over a fixed period of time, then you are not ready to open your live account yet. Take a few steps back, complete your training, gain experience and master your training plan. You will always have time in the future to trade your live account so don’t do it when you are not ready.

Demo Trading Versus Live Trading

Learning how to trade on a demo account can be an exciting and rewarding experience. Demo trading will pave the road to your trading success. However, I have to warn you that there is still an enormous difference between demo trading and switching over to live trading. You will experience stress and psychological issues that you have not felt during your demo trading period. The moment you start trading with real money, your emotions will get in your way and can affect your decision-making process. This is normal for all traders to experience because none of us want to lose our hard-earned cash, do we? One of the greatest traps a demo account could set for you is to make you believe that you will be able to achieve the same success in your live trading account that you had while trading your demo account. You can only achieve the same results if you stay disciplined towards your trading strategy and can keep your emotions in check.

Traders will typically lose their confidence in their trading plan once they experience a few losses on their live account. This will be a good time to switch back to demo trading to get your confidence back or make a few adjustments to your strategy. Do not switch over to live trading if you don’t feel ready yet. Live trading is certainly not easy, but it does not mean that you can’t do it. You need to make mistakes so that you can learn from them and correct them before you can be successful. A demo account can’t substitute the real thing but you will definitely need to get your feet wet before you can go swimming.

Trading Simulator Instead Of Demo Account

A Trading Simulator will act exactly like any free demo account. In my personal opinion, I would choose a Trading Simulator over a demo account any day of the week. I will recommend traders rather use a Trading Simulator because it offers you more features than what a regular demo account can provide. One of the coolest things about a Trading Simulator is that you can use it to backtest your strategies. This is a big plus point because you can take a lot more trades in an hour than what you could take in a day if you sat in front of the screen the whole time. This functionality is especially useful for those people that don’t have a lot of time to sit down and trade.

Fortunately, we have taken the initiative to create a Binary Options Trading Simulator just for you! You can use the indicator directly on your Metatrader 4 platform. Everything you need is all in one place, no more logging into your broker and selecting which instruments you want to trade. Take a look at our Trading Simulators article for more information regarding how to use it and also how to set it up. I can assure you that you won’t be disappointed.

Conclusion

I guess we all have a dream to trade for a living. Being able just to quit your job, trade for a few hours per day, buy everything you want, do anything you want and just chill. Sure, there are a few lucky ones that exist out there but let me tell you, trading is a bumpy road, and there are no shortcuts in this business. If you think that the professional traders have some sort of magical secret that we don’t know of, you are wrong. These traders have put in the necessary hard work to learn every aspect of trading and absorb all the information they could find like a sponge. They have mastered their emotions and trading plan to approach any kind of trade with a business attitude.

If you want to become a consistently profitable trader, you have to change your mind set from getting rich now and start thinking about the future. Start with demo trading and gain the experience and screen time. Do this until you are able to distinguish between good and bad setups just by recognizing similar price action that you have seen play out before. Get your emotions under control to build the necessary confidence. The bottom line is if you want to succeed like they did, you have to put in the blood, seat and ters as they did to come out on top. This phase may take you a while to conquer but remember – Rome was not built in a day! Demo and demo some more and only then, switch over to live trading. Put in the effort and you WILL reap the benefits sooner or later!

Darin Hotard

LEVEL 2 : NOVICE

REVIEWS 8 | REPLIES 3

#2151

hotard190

September 18, 2015 at 6:14 pm

Who knew that trading with a demo account would be so “complicated”. I absolutely agree that people do not take up their demo accounts seriously. I also fell into the same trap when I first started.

I was doubling my demo account every other day and I thought wow I am going to be the richest man alive….. Well, well, well, let’s just say that I lost the money in my live trading account as quick as I could say “I am going to be a millionaire” haha. I could not even double my account once. I thought heck, it must be bad luck or something. So I decided to fund my account again, this time with more than the first time. I actually managed to double the account in 2 days and I thought aha here we go, I knew it was just bad luck the first time.. Unfortunately after 1 week I went and wiped out my second account.

This really took a toll on my psychological side. I then realized that I need to start doing something different. I started using the demo account just as you explained and I started getting consistent results. I made an attempt on a 3rd live account and I am still going strong.

It just shows you the power of using a demo account the right way. I wish I knew about trading simulators a while back. It looks like an awesome tool to use instead of a demo account.

Happy trading guys
Darin H.

Marvin Wines

LEVEL 2 : NOVICE

REVIEWS 8 | REPLIES 2

#2152

marvinthegreat

September 18, 2015 at 8:24 pm

What a great story Darin! This is actually motivating in some way. I am still a beginner so I will definitely take your guys’ advice. Sounds like the only way to achieve the results I am looking for.

By the way – good luck with your 3rd account;) I am sure you are on your way to success!

Cheers

Zona Gigliotti

LEVEL 1 : NEWBIE

REVIEWS 7 | REPLIES 2

#2153

zonagig

September 18, 2015 at 11:43 pm

I find it very difficult to take my demo account serious. I can’t seem to stick with my trading plan when I use fake money. I must say that it has helped me develop a good strategy to trade with but I have not been able to get down the money management thing. I will most probably struggle with it if I go live so I am going to make the effort to perfect it while I am still demo trading.

All the best

Conception Lo

LEVEL 1 : NEWBIE

REVIEWS 7 | REPLIES 2

#2154

lolobinary

September 19, 2015 at 2:04 am

Thanks for the advice Alex! Some really good info on what to do and what not. I will keep it in mind when I am trading next week 🙂

 

Sheba Woullard

LEVEL 1 : NEWBIE

REVIEWS 7 | REPLIES 2

#2155

101sheba101

September 19, 2015 at 5:11 am

What a GREAT job you did with your Trading Simulator!! Its far better than using my demo account that I have with my broker. I thought that it was going to be a waste of my time but man, I LOVE IT 🙂

I would recommend everyone to atleast give it a try and see what you think about it…

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