Demo Account vs Live Account: Benefits and Risks
*OspreyFX would like to state that traders should research extensively before following any information given hereby. Any assumptions made in this article are provided solely for entertainment purposes and not for traders to guide or alter their positions. Please read our Terms & Conditions and Risk Disclosure for more information.
Learning about all the ins and outs of the trading industry is not an easy feat. Many new traders tend to feel overwhelmed by the avalanche of information, strategies, and patterns that they need to assimilate. So, what’s the best thing for a trader to do? Practice and more practice, and we know the best way to do it.
If you’ve just dipped your toes in the trading ocean, it’s important to start by familiarizing yourself with the shore before exploring further. Moreover, beginner traders should start by gaining as much knowledge about this dynamic industry as possible.
Dedicating time daily to learn something new about trading is a great habit to cultivate. Nowadays, there are many resources that you can access and many of them can be incorporated into your everyday routine. For instance, how about listening to a podcast while jogging? Or how about going through an analysis piece while having breakfast? Practicing consistently on a Demo Account is another important resource to have in your arsenal.
What’s a Demo Account?
In a nutshell, a Demo Account can be described as a simulator. Indeed, a Demo Account replicates the conditions of a real trading account without the utilization of real money. Upon opening your Demo Account on a Forex platform you will be given virtual money to conduct simulated trades. It could be said that in many ways this is similar to playing a game of Monopoly since you are strategizing and trading but both earnings and losses are fictitious.
On the other hand, your live account is funded by real money that you use to conduct actual trades in the market of your choice.
What are the Benefits?
No tangible commitment: The most easily identifiable benefit of a Demo Account is that it enables you to conduct trades without the fear of losing money. You will be able to observe how the trading environment works without any risk. For instance, how are world events swaying the markets? What is your best course of action? Should you hold or sell?
You will also be able to identify the unique traits that distinguish you from other traders. On the same lines, you will also be able to zone in on the weaker areas that you need to improve.
Gain familiarity with trading platforms: Getting used to how a trading platform works is a learning process in itself. Your Demo Account also comes in handy within this context. So, thanks to your Demo Account, you can discover all the features that the platform has to offer. Utilize them to your full advantage once you start conducting real trades.
Different orders: Not all market orders are the same. Market orders, limit orders, stop-loss orders maybe the most common type but they are certainly not the only ones. Your Demo Account gives you the unique opportunity to explore the different orders available and how they can be best utilized to ace your trading game.
What About the Risks?
Getting too comfortable: The most common mistake that many traders do is to stay in their comfort zone too long. A Demo Account offers an environment that feels reassuring and safe. As a result, it’s very easy to feel reluctant to step out in the real world. However, while it is important to use your Demo Account to practice, it essential to experience the real deal. Ultimately, a simulation is also a simulation and can never offer the same conditions as the live trading environment.
No pain no gain: Losses are an important part of every trading. Indeed, a loss can be an important lesson that helps you to make better choices in the future. However, losses in a risk-free environment will not have an impact on your balance and therefore it’s easier to take these more lightly.
The emotional dimension: Even in highly rational environments like the financial markets, our emotions are always present. Fear, sadness, and risk awareness have all been wired in the human brain to keep them safe in primitive hostile environments. These instincts are still activated whenever we could lose something valuable. The risk-free environment of a Demo Account doesn’t prepare you emotionally for the real thing, only trading on a Live Account can teach you how to manage your emotions properly.
Want to Open a Demo Account?
Gaining experience on a Demo Account ensures that you have the necessary skills to keep going from one level to the next. Build a solid foundation for your trading journey and open an OspreyFX Demo Account today!
Also, OspreyFX is the perfect partner to help you on your trading journey. If you’re ready to jump from Demo to Live, we provide the tools needed to ace the markets, traders can now trade with better insight with our Forex Calculators.