Trading naturally comes with an in-built element of risk, and anyone who claims otherwise is turning a blind eye to the potential to lose money. That said, the ability to mitigate and manage risk in a responsible and sustainable way can unlock a lucrative source of income for skilled traders. The key is to build confidence and a level of skill that allows the trader to trade with real money in real-time markets.
Demo trading accounts are a highly effective tool to do this, but they offer much more than a risk-free introduction to trading.
What Is A Demo Trading Account?
Demo trading accounts are simulated environments in which aspiring traders practice everything from the fundamentals to more advanced trading strategies without having to risk real money. Because they cannot lose anything they invest in the market, they are able to test out new approaches and get a much better feel for how the markets evolve during the course of the day.
A demo trading account is really just a practice account that uses virtual money to allow traders to test themselves against the markets. The best demo accounts have real-world data fed into them so that they mirror the performance and behavior of the markets the traders ultimately want to be able to trade in. The key, then, is for a trader to figure out the best way to use their demo trading account to prepare them for real-world trading.
How Do Traders Use Demo Trading Accounts?
Finding a demo trading account UK traders can rely on is the smart way to build and develop skills without exposing yourself to real financial risk. By practicing using simulated trades, you can get used to interpreting real-time data so that you can adjust and execute your strategies accordingly. Here are some of the fundamentals that new traders use demo trading accounts to get to grips with:
- Understanding typical market behavior at set times throughout the day, such as rallies that often occur when a market first opens and when a market is about to close
- Developing an understanding of how to read financial charts and use candles to make predictions on the nature of an emerging trend
- Gaining a greater level of understanding of the inherent volatility of a range of different asset classes without risking real money
- Developing longer-term strategies with trading limits to understand how the markets evolve over the course of several hours or several days
- Judging whether or not an asset is accurately priced and learning when to make a trade to beat the market if a discrepancy is detected
While the virtual currency that is amassed cannot be withdrawn and spent, building it up on a consistent basis is a strong indicator that the trader is beginning to understand key elements. Although the risk is set to zero with a demo account for protection, this is something that may unintentionally impact how you approach your trades. Adopting constant high-risk strategies, safe in the knowledge that you have nothing to lose, will not properly prepare you for real-world trading. There are psychological elements at play here that we need to consider.
Demo Trading Accounts As A Tool For Self-Discipline
A demo trading account becomes a tool for self-discipline when you begin to use it as if you were trading with real money. Novice traders often enjoy simply working through the mechanics of making a trade and seeing what happens, but this approach cannot be the full extent of the use of the demo account.
Skilled traders who know how to balance risk and reward will typically cite three key things that they have developed earlier in their careers:
- Consistent mental discipline is required to make sure that decisions are made quickly, efficiently, and with the benefit of the full range of data that is available. Rushing decisions will create more risk, which then exposes the trader to potentially greater losses
- Strong levels of emotional control are needed to make sure that trades are never placed in anger, for sentimental reasons, or in the hope of chasing losses. Emotional control is what ensures traders can walk away and trade another day
- Clear strategic thinking under pressure is required because many decisions have to be made in a relatively short space of time. Being able to digest and interpret a wide range of data from numerous different sources is essential
Seeing a demo trading account as a tool to work on the mental side of trading can help new traders enter the market with greater success. More than that, it helps ensure that healthy, sustainable trading habits are ingrained in their approach from day one.
Transitioning From Demo Trading Accounts To Live Trading
There’s a growing trend for traders of all experience levels to look at the tools that platforms like ThinkMarkets have to offer. Looking closer at these ranges of predictive tools is something that many aspiring traders choose to do when they want to take an increasingly sophisticated approach to balancing risk. The idea is to ease the transition from demo accounts to live trading with real money as much as possible. Here are some proven ways that successful traders consistently manage to do this:
- Use the demo account as a tool to master all of the detailed options of a given trading platform so that operating it feels like second nature
- Test a specific strategy in detail on the demo account before investing a small amount of money in one of the more predictable markets
- Make sure to put into practice the mental discipline techniques developed during demo trades to manage risk in a way that is sustainable and healthy
Traders who see demo accounts as so much more than a quick bit of practice or some risk-free fun are the traders who tend to successfully make the transition to live trades. The key is to eventually start trading with a demo account as if it were using real capital. This will create the right psychology so that trading is no longer seen as a risk-free activity. The pressure that comes with this shift can then be adequately managed with consistent practice.
Final Thoughts
A demo account is more than just a practice tool that helps traders master the fundamentals and then start developing their own strategies. One of the key benefits that many people initially overlook is the way in which taking proper care of the virtual capital helps promote self-discipline when working with the markets.
A skilled trader’s career lives and dies by their ability to balance risk and reward in a sustainable way, and that means a high level of self-discipline is required. There will always be losses, missed opportunities, and profits that could have been bigger. The skill lies in making sure you don’t end up chasing losses or trying to constantly earn more and more without taking adequate account of the risk you are exposing yourself to.
Trading with a demo account is as much about mastering the mental side of trading as it is about understanding the technical and strategic elements. Putting them together is something that the world’s most successful traders are able to do on a consistent basis, and it’s a set of skills many people can learn with the right tools at their disposal.
